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Fixed income: There’s a lot to love

While rate hikes have been tough on equities, bonds are once again a viable option for income and total return.

Our Top Market Takeaways for November 4, 2022

Market update: It’s me. Hi. I’m the problem it’s me.

This week the Federal Reserve raised the policy rate by another 75 basis points to 4% for the first time since 2007. In just 8 months, they have raised rates by 375 basis points. 

To us, the meeting suggested a shift in policy from an era of “emergency” super-sized interest rate hikes to a more deliberate approach to have inflation return to the 2% target.

Earlier this year, the Fed was focused on getting policy rates higher “expeditiously” to fight against potentially spiraling inflation expectations and financial conditions that were too easy. Now, it seems like they will still be taking rates higher, but the pace will be slower.

There is good news and bad news here for markets. The bad news is that the higher rates go, the higher the chances that we get a recession. The good news is that a slower pace should also work to reduce volatility across markets and could provide an opportunity for the Fed to notice meaningful turning points in either growth and/or inflation.

Stocks fell after the meeting, but zooming out, the S&P 500 is still positive over the last month with the cyclical sectors outperforming. Bond yields are unsurprisingly on the rise. 2-year Treasury yields are trading at cycle highs, but the reaction in the 10-year yield was much more muted.

It seems like the Fed will act at a slower pace when they meet in December and early next year, but the economy and markets will have to deal with higher rates and their consequences well into 2023.

There still isn’t a green light for a big near-term rally in risk assets, but fixed income is providing compelling yields and total return potential over the medium term.    

Spotlight: Learning to love fixed income again

We love the stock market. Over the long-run, we are hard pressed to find a more efficient, more accessible generator of wealth. In just the last decade, the stock market has provided a 12.9% annualized return (even after the 20% drawdown that we are currently in).

For most of the last decade, it has been harder to love fixed income. First of all, your potential return is capped in bonds and infinite in stocks. Low interest rates offered investors paltry income and limited protection in the case of an economic downturn. A feature of monetary policy was to get money out of the safety of bonds and into riskier assets or the real economy. Core fixed income has only returned 7.5% cumulatively over the last 10 years.

But now, after an aggressive campaign of rate hikes from global central banks and one of the worst sell-off in bonds on record, we are learning to love fixed income again.

Clearly, short term yields are much higher. Investors can make over $9 in the next two years by lending the U.S. government $100.

Looking for stable income? Check out municipal bonds. Some munis (which are more tax efficient than other areas of fixed income) are offering 5% coupons that you can buy at or close to face value. For most of the last decade, investors had to pay 15-20% above face value for that same coupon.

Seeking protection against a potential recession? Longer dated investment grade bonds could offer 20-30% total returns over the next three years if the Federal Reserve ends up cutting rates back below 2.5%.

We still love the stock market, but it doesn’t always love us back (especially in the short term). We are currently in a 20% drawdown from the peak, and it’s hard to make a case for a quick snap back to new all-time highs. Meanwhile, bonds will likely become more valuable as the global rate hiking campaign reaches its final stages and the real economy starts to feel the consequences. The asset class is once again a viable option for both income and total return in portfolios.      

Your J.P. Morgan team is here to help you understand these insights in the context of your financial plan.



All market and economic data as of November 4, 2022 and sourced from Bloomberg and FactSet unless otherwise stated.

The Standard and Poor’s 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The Bloomberg Eco Surprise Index shows the degree to which economic analysts under- or over-estimate the trends in the business cycle. The surprise element is defined as the percentage difference between analyst forecasts and the published value of economic data releases.

Investing in fixed income products is subject to certain risks, including interest rate, credit, inflation, call, prepayment and reinvestment risk.  Any fixed income security sold or redeemed prior to maturity may be subject to substantial gain or loss.

The price of equity securities may rise or fall due to the changes in the broad market or changes in a company's financial condition, sometimes rapidly or unpredictably. Equity securities are subject to 'stock market risk' meaning that stock prices in general may decline over short or extended periods of time.

Investors should understand the potential tax liabilities surrounding a municipal bond purchase. Certain municipal bonds are federally taxed if the holder is subject to alternative minimum tax. Capital gains, if any, are federally taxable. The investor should note that the income from tax-free municipal bond funds may be subject to state and local taxation and the Alternative Minimum Tax (AMT).

We believe the information contained in this material to be reliable but do not warrant its accuracy or completeness. Opinions, estimates, and investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice.


  • Past performance is not indicative of future results. You may not invest directly in an index.
  • The prices and rates of return are indicative, as they may vary over time based on market conditions.
  • Additional risk considerations exist for all strategies.
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All companies referenced are shown for illustrative purposes only, and are not intended as a recommendation or endorsement by J.P. Morgan in this context.

Bonds are subject to interest rate risk, credit and default risk of the issuer. Bond prices generally fall when interest rates rise.​ Investing in fixed income products is subject to certain risks, including interest rate, credit, inflation, call, prepayment and reinvestment risk. Any fixed income security sold or redeemed prior to maturity may be subject to substantial gain or loss. 

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