60 seconds on the outlook for US bonds

Andrew Chorlton discusses where he sees the opportunities in US fixed income and why investors could be caught off-guard by the actions of the Federal Reserve.


Andrew Chorlton

Andrew Chorlton

Fed watch

In what should be an interesting year for fixed income, it is possible that investor expectations for only two rate rises in 2016 and two more in 2017 could be overly cautious.

Any positive news domestically or globally could result in the Federal Reserve accelerating its rate rise schedule in line with the 'dot plot' it has talked about. This would likely cause weakness in the front end of the Treasury yield curve (i.e. in shorter-dated Treasuries).

Investment opportunities

Elsewhere, opportunities are emerging in investment grade corporate bonds and high yield after a difficult period, but one must be conscious of liquidity risk.

Conversely, municipal bonds are looking less attractive after a strong couple of years of performance.