Giving your fixed income outlook a look? Consider the recent analysis from Morgan Stanley on how it sees the fixed income situation this year. Analysts at the firm assessed the ongoing back-and-forth between inflation and interest rates and have come up with a few important takeaways, including suggesting a few key fixed income ideas for investors to consider.
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The outlook considers the likelihood of the Fed cutting rates later this year. While rate cuts have dominated media narratives this year and have failed to appear so far, they could still arrive. Even one or two would impact the fixed income landscape significantly. So, where might fixed income investors want to look?
The period leading up to rate cuts may boost the case for intermediate duration, per the firm’s analysis.
“If rates decline over the course of the year, we believe high-quality fixed-income of intermediate duration has the potential to generate total returns that are substantially greater than current yields,” the analysts, co-head of the Broad Markets Fixed Income Team Vishal Khanduja and Institutional Portfolio Manager Andrew Goodale, wrote.
Given that fixed income outlook, an ETF like the Eaton Vance Total Return Bond ETF (EVTR) may appeal. It charges a 32 basis point fee for its active approach. The fund’s active managers look for investment-grade securities.
While it does get a bit longer in duration, it includes a mix of intermediate- and longer-term duration bonds with an average between five and 10 years. Perhaps most importantly, that active remit can really help in bonds. Managers often need to apply close scrutiny in assessing securities, with active attention particularly important in credit analysis. For investors looking at their fixed income options, a strategy like EVTR may appeal.
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