Q4 2022 Investment Grade Corporate Commentary

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Investment Grade Portfolio Team
DEC 31, 2022

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Public Fixed Income

The fourth quarter of 2022 capped off the worst year on record for the fixed income markets. The Federal Reserve’s fight against inflation, deteriorating corporate fundamentals, and the Ukraine conflict highlighted a year of volatility and uncertainty. The Fed raised rates by 425 basis points during the year, with 125 basis points coming in the fourth quarter as the Federal Reserve raised the target rate 75 basis points at the November FOMC meeting, and an additional 50 basis points during the December meeting. Although this marked a slowdown from the Fed’s recent pace of hikes, Chairman Powell continued to emphasize a hawkish stance throughout the quarter. Powell made it clear that although smaller interest rate increases are likely ahead and the pace of hikes will slow, there will be ongoing increases until inflation is tamed, and the labor market shows signs of regression. Inflation concerns cooled following lower than expected year-over-year CPI prints of 7.7% in October and 7.1% in November; however, economic data such as job vacancies, wage growth, and job gains suggest that demand needs to better align with supply in the labor market. The 10-year Treasury started the quarter at 3.83%, increased to a high of 4.24% in October, then rallied significantly before increasing at the end the quarter to 3.87%. Overall, the Treasury curve shifted upwards across shorter and longer maturities, while remaining relatively flat across the belly of the curve. The 5s/10s and 20s/30s curves steepened, yet still ended the year inverted -13 and -19 basis points, respectively.1