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How to Dynamically Position Your Fixed Income Allocation in the Current Market

Fixed income markets have come under pressure after the central banks began raising interest rates earlier this year in response to soaring inflation. While inflation has shown signs of slowing down, October’s 7.7% reading remains well above the Federal Reserve’s 2% target, suggesting that further interest rate hikes could be in the cards.

According to CME FedWatch, traders expect the Fed’s target rate to increase from 425 to 450 basis points on December 14 before rising to as much as 500 to 525 basis points by mid-2023 (~36% odds). But, of course, the pathway to higher or lower rates depends on several factors, including inflation and employment data.

Let’s look at one portfolio manager’s dynamic model and a few lessons to heed when looking back at rising rate periods.

Don’t forget to check our Fixed Income Channel to learn more about generating income in the current market conditions.

Building a Dynamic Model

Taking a History Lesson

Total cumulative returns of select indexes over rising rate periods

The Bottom Line