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Wasmer Schroeder Quarterly Bond Market Overview Q4

Written by First Affirmative

Bond Overview

… and Make Sure Your Seat Belt is Securely Fastened

By: Thomas N. Richmond Jr., Co-Head of Taxable SMA Strategies, Senior Portfolio Manager

In a word, investing in 2022 was bleak. The bond market was not spared in the carnage, as a toxic mixture of generationally high inflation and monetary policy tightening in response caused historically large losses across virtually every sector of every broad market. As the US Federal Reserve (Fed) raised rates a historically aggressive 425 basis points (bps) over the course of the year, the inflationary forces they continue to seek to tame remained stubbornly present, with the Consumer Price Index (CPI) spending most of the year above 7%. This caused repricing of risk assets across the board, as equities fell, interest rates rose, credit spreads widened, and volatility reigned. The fourth quarter brought a slight reprieve with some emerging signs of slowing consumer price increases, especially in less supply-chain constrained goods producing sectors, however bond market performance as you will read, was less than stellar, and the economic backdrop remained muddled at best.

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