GW&K Taxable Commentary – October 2022

GW&K Outlook and Positioning

Fixed income markets were once again under pressure in October. Inflation surprised to the upside and the Fed reiterated its commitment to subduing it. The housing sector deteriorated further, and consumer sentiment remained dour, while the labor market showed few signs of weakening.


Minutes from the September meeting made clear that the Fed will raise rates aggressively and keep them high until it sees evidence that inflation is coming down. The futures market has the overnight rate rising to 5% in May of 2023 before declining by almost 50 basis points through the end of the year.

Interest Rates

Yields across the curve were higher on the month, briefly touching new cyclical peaks before retreating. The front end sold off in response to increased Fed hawkishness, while long rates reflected rising confidence that the end of the hiking cycle is near.


Investment grade spreads traded in a tight range and ended unchanged amid a benign start to third quarter earnings. High yield benefited from a favorable technical environment, with low new issuance and few signs of fundamental distress.


Mortgage-backed securities (MBS) underperformed Treasuries slightly. Rate volatility was a minor negative, though this was largely offset by slowing prepayments. Within the space, lower coupons lagged as a result of quantitative tightening, given that these were the focus of the Fed’s previous purchases.




Chart 1-2




Treasuries - Oct







Indexes - Oct


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