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MONTHLY MARKET COMMENTS
  • Despite a modest reduction in inflation indicators during December, the Fed maintained their vigilance and hiked the Fed funds rate another 50 bps in mid-December. As a result, the yield curve remained inverted with the 6-month portion of the curve representing the highest yield (4.75% as of 12/30/22). Labor markets remained tight which put pressure on wages which in turn pressured prices, suggesting the Fed might not yet be in a position to consider a pivot. We currently expect that the Fed will increase rates another 25 bps in the end of January and then reassess the economic outlook. It will likely be challenging for the Fed to maneuver the economy into a soft landing given the material level of tightening during 2022.  

  • During the month of December, while Treasury yields were wider across the curve, corporate spreads remained anchored with the index spread tightening only 3 bps to 129 bps. The Bloomberg US Corporate High Yield index similarly remained stable over the month as spreads increased only 3 bps to 468 bps. Market spreads have not been reflecting a downturn as many have predicted since we have not seen material cracks in the profit outlook or payroll gains but tight valuations and expectations for deterioration in the risk environment suggest keeping beta slightly defensive.

  • The municipal market experienced a first ever event as the 2s-10s portion of the curve inverted modestly while the 10s-30s portion of the curve steepened during December. This unusual environment was the result of fund outflows steepening the long end coupled with limited issuance supporting short-end demand. New issuance was one of the key themes during the year as supply slowed and higher rates exacerbated a record outflow from muni mutual funds that reached approximately $143 bn by the end of December. Despite the challenging demand technical from retail investors, munis typically serve as a shock absorber during periods of economic stress and we would anticipate the muni market to offer positive total return potential over the next six months during a downturn.

 

As of 3 January 2023

Source: Bloomberg

 

This marketing communication is provided for informational purposes only and should not be construed as investment advice. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Loomis, Sayles & Company, L.P. Investment recommendations may be inconsistent with these opinions. There is no assurance that developments will transpire as forecasted and actual results will be different. Information, including that obtained from outside sources, is believed to be correct, but we cannot guarantee its accuracy. This information is subject to change at any time without notice.

This material is not intended to provide tax, legal, insurance, or investment advice. Please seek appropriate professional expertise for your needs.

Indices are unmanaged and do not incur fees. It is not possible to invest directly in an index.

Commodity, interest and derivative trading involves substantial risk of loss.

Any investment that has the possibility for profits also has the possibility of losses, including the loss of principal.

Markets are extremely fluid and change frequently.

Past performance is no guarantee of, and not necessarily indicative of, future results.

MALR030247

Yield
Model TypeDuration Types
Full Intermediate
Conservative 5.56 5.45
Moderate 6.25 6.14
Enhanced 6.5 6.41
Municipal 4.16 3.99
Conservative Hybrid 4.86 4.68
Moderate Hybrid 5.21 5.02
Enhanced Hybrid 5.33 5.2
TAX-ADJUSTED YIELD
Model TypeDuration Types
Full Intermediate
Conservative 3.5 3.43
Moderate 3.94 3.87
Enhanced 4.1 4.04
Municipal 4.16 3.99
Conservative Hybrid 3.96 3.81
Moderate Hybrid 4.25 4.09
Enhanced Hybrid 4.34 4.24
OPTION-ADJUSTED DURATION
Model TypeDuration Types
Full Intermediate
Conservative 6.09 4.53
Moderate 5.73 4.31
Enhanced 5.5 4.32
Municipal 5.59 4.47
Conservative Hybrid 5.84 4.5
Moderate Hybrid 5.66 4.39
Enhanced Hybrid 5.55 4.4
AVERAGE QUALITY
Model TypeDuration Types
Full Intermediate
Conservative 19 19
Moderate 19 19
Enhanced 19 19
Municipal 22 22
Conservative Hybrid 21 21
Moderate Hybrid 20 20
Enhanced Hybrid 20 20
% IN EMERGING MARKETS
Model TypeDuration Types
Full Intermediate
Conservative 0 0
Moderate 0.09 0.09
Enhanced 0.13 0.13
Municipal 0 0
Conservative Hybrid 0 0
Moderate Hybrid 0.05 0.05
Enhanced Hybrid 0.07 0.07
% IN HIGH YIELD
Model TypeDuration Types
Full Intermediate
Conservative 0 0
Moderate 0.06 0.06
Enhanced 0.09 0.09
Municipal 0 0
Conservative Hybrid 0 0
Moderate Hybrid 0.03 0.03
Enhanced Hybrid 0.05 0.05
% In Securitized
Model TypeDuration Types
Full Intermediate
Conservative 0.16 0.16
Moderate 0.12 0.12
Enhanced 0.13 0.13
Municipal 0 0
Conservative Hybrid 0.08 0.08
Moderate Hybrid 0.06 0.06
Enhanced Hybrid 0.07 0.07

Source: Loomis Sayles.
The universe for analysis is typically the broadest opportunity set the respective team invests in, for example, include the Bloomberg Barclays US Aggregate, and potential indicative yields may assume investments outside of these indices. Conservative portfolios will typically invest in Treasurys, corporates, securitized, and allow up to 5% in emerging markets debt, per client guidelines. Moderate portfolios will typically invest in Treasurys, corporates, securitized, and allow up to 10% in emerging markets debt and 5% in high yield  per client guidelines. Enhanced portfolios will typically invest in Treasurys, corporates, securitized, and allow up to 15% in emerging markets debt and 10% in high yield  per client guidelines.

The sample characteristics and allocations do not represent an actual portfolio managed by Loomis Sayles or any investment recommendation. There is no assurance Loomis Sayles would be able to construct a portfolio with the characteristics or allocations shown. All data is based on current market conditions. These proposed sample characteristics do not take into account the size of the investment or the availability of any securities for purchase.  This information is provided per client request and subject to change at any time without notice.

Hybrid models contain a mix of taxable securities and tax-exempt municipal bonds.

This material is not intended to provide tax, legal, insurance, or investment advice. Please seek appropriate professional expertise for your needs.

There is no guarantee that the investment objective will be realized or that the strategy will generate positive or excess return. 

Past performance is no guarantee of future results.

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