GW&K Taxable Commentary - October 2022 - GW&K Investment Management

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.

Fed

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.

Credit

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.

MBS

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.

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Mary F. Kane, CFA

Partner, Taxable Bond Portfolio Manager

Stephen Repoff, CFA

Principal, Taxable Bond Portfolio Manager

Disclosures

This represents the views and opinions of GW&K Investment Management. It does not constitute investment advice or an offer or solicitation to purchase or sell any security and is subject to change at any time due to changes in market or economic conditions. The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes.

Investing in securities or investment strategies, including GW&K’s Investment Strategies presented in this document, involves risk of loss that clients should be prepared to bear. No investment process is free of risk; no strategy or risk management technique can guarantee returns or eliminate risk in any market environment. There is no guarantee that GW&K’s investment processes will be profitable, and you therefore may lose money. Past performance is no guarantee of future results. The value of investments, as well as any investment income, is not guaranteed and can fluctuate based on market conditions. Diversification does not assure a profit or protect against loss. GW&K’s active management styles include equity and fixed income strategies that are subject to various risks, including those described in GW&K’s Form ADV Part 2A, Item 8. GW&K’s Form ADV Part 2A may be found at https://adviserinfo.sec.gov/Firm/121942 or is available from GW&K upon request.

Indexes are not subject to fees and expenses typically associated with managed accounts or investment funds. Investments cannot be made directly in an index. Index data has been obtained from third-party data providers that GW&K believes to be reliable, but GW&K does not guarantee its accuracy, completeness or timeliness. Third-party data providers make no warranties or representations relating to the accuracy, completeness or timeliness of the data they provide and are not liable for any damages relating to this data. The third-party data may not be further redistributed or used without the relevant third-party’s consent. Sources for index data include: Bloomberg (www.bloomberg.com), FactSet (www.factset.com), ICE (www.theice.com), FTSE Russell (www.ftserussell.com), MSCI (www.msci.com) and Standard & Poor’s (www.standardandpoors.com).

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