With the highest inflation in a generation coupled with dramatic rate hikes by central banks worldwide to combat it, 2022 was a challenging year for investments across asset classes.

Despite the uncertain economic picture ahead in 2023, investors should be excited by the opportunities for fixed income investing this year. Conditions for these investments may be their strongest in a decade or more.1

Current data suggest that inflation is already declining toward target levels, that job numbers (while strong now) are likely to moderate through the course of the year, and that a broader economic slowdown likely leading to a recession mid- to late this year is already underway.2

While these trends suggest a rocky year for stocks and the overall economy, smart investors can find opportunities at home and abroad to diversify their fixed-income portfolio and protect their savings in the face of a potentially volatile market.

Inflation is finally slowing

Central banks in the United States, Canada, and around the world took unprecedented steps in 2022 to combat inflation with dramatic increases in interest rates.

In its late January 2023 announcement, the Bank of Canada hiked rates another 25-basis-points to 4.5%, their highest level in 15 years. This represents an unprecedented 425-basis-point rise since the start of 2022 as the bank fought inflation.3 The US Federal Reserve also raised rates in the US another quarter point at their February meeting.4

However, in a sign that such restrictive monetary policy is achieving its anti-inflationary aims, the Bank of Canada became the first major central bank to announce a ‘wait and see’ policy on further increases in the near future as it assesses whether the existing rate hikes have been enough to mute the factors that have driven inflation.5 Fed watchers speculate that a similar ‘wait and see’ policy will be adopted in the US.6

The upside for investors in all these rate increases has been that rising interest rates are a boon to bond yields, meaning investors may want to prioritize fixed income this year.

While high interest rates take a toll on mortgage rates and unsecured debt such as student and consumer loans, the same higher rates mean higher yields on fixed-income investments. One-year guaranteed investment certificate (GIC) payouts recently topped 5% in Canada.7 Yields on government and investment-grade corporate bonds are also up compared to a year ago as competition for lenders heats up in the bond market.

For today’s fixed income investor, opportunities for strong yields already exist, with the potential for greater returns if the economy faces a slowdown or an outright recession later this year.8

Will we face a recession in 2023?

Along with a small rate increase, the Bank of Canada’s recent announcement also hinted at the possibility of a recession in 2023 as a consequence of higher interest rates.

In its quarterly Monetary Policy Report (MPR), the Bank of Canada anticipates the possibility that the economy could dip into recession as early as the first half of 2023 and not reach the bank’s target level of 2% inflation until 2024.9 And until that level is reached, cuts to interest rates are unlikely, despite the belief by some segments of the market that we may see rates lowered as much as two times in the second half of 2023.10

Canada is not alone in anticipating a recession this year. In the United States, both public sentiment and the opinion of a significant majority of economists foresee an economic contraction in 2023.11 And while the European Union shows signs that it may avoid a recession, the United Kingdom’s economy contracted for the sixth straight month in January, suggesting a difficult road ahead for 2023.12

For investors, these warning signs mark an excellent opportunity to move assets away from the potential volatility of equities in the coming year and into the lower-risk haven of fixed income, whether at home or abroad. And given interest rate volatility and aggressive monetary management by central banks, investors may be able to do so without making significant sacrifices in returns.13

Planning your fixed income investing for 2023

Fixed income investing’s primary goal is safety—protecting your savings over time.

Because of ongoing uncertainty about the prospects for growth in 2023, high-quality fixed-income assets may prove more stable, attractive investments in the near term compared to more volatile investments like stocks.

Given this, fixed income investors should keep the following in mind when planning investments in 2023:

  • Aim for high-quality assets in your portfolio. Whether we face a hard or soft landing in 2023, high-quality fixed-income assets, such as US Treasuries, investment-grade company debt, and asset-backed securities will provide stable investment opportunities with minimal risk.14
  • Diversify your portfolio. It’s Investing 101, but that’s because it works. Over time, diversification delivers the best returns, even in fixed income. Take advantage of 2022’s economy-wide valuation reset and scoop up high-quality fixed-income assets across a range of sectors in 2023.15
  • Vary your investment strategies. Investors should take advantage of options to ladder their fixed-income portfolios. Stagger the maturities of your fixed income investments to give yourself the flexibility to jump into the best returns as the market fluctuates.16

Investing in Fixed Income ETFs

While the economy faces headwinds in 2023—ongoing uncertainty about inflation, the potential for further rate hikes by central banks, and the possibility of a recession—there are silver linings for savvy fixed income investors.

One is the opportunity to diversify your fixed income holdings through investing in fixed income ETFs.

Evolve ETFs offers two fixed income funds: the Evolve Active Global Fixed Income Fund (EARN ETF) and the award-winning Evolve Active Core Fixed Income Fund (FIXD ETF). EARN ETF is designed to provide investors with exposure to global debt securities of corporate issuers while FIXD ETF gives investors access to high quality Canadian fixed income securities.

For more information on the Evolve Active Global Fixed Income Fund (EARN ETF), explore fund details here.

For more information on the Evolve Active Core Fixed Income Fund (FIXD ETF), explore fund details here.


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1. https://www.wealthprofessional.ca/investments/fixed-income/is-this-the-best-opportunity-in-bonds-for-a-decade/372735

2. https://am.jpmorgan.com/us/en/asset-management/institutional/insights/market-insights/market-updates/on-the-minds-of-investors/what-to-do-with-fixed-income-in-2023/

3. https://www.reuters.com/markets/rates-bonds/bank-canada-hikes-rates-becomes-first-major-central-bank-signal-pause-2023-01-25/

4. https://www.cnbc.com/2023/01/30/federal-reserve-likely-to-hike-interest-rates-again-how-to-prepare.html

5. https://www.reuters.com/markets/rates-bonds/bank-canada-hikes-rates-becomes-first-major-central-bank-signal-pause-2023-01-25/

6. https://www.cnbc.com/2023/01/30/federal-reserve-likely-to-hike-interest-rates-again-how-to-prepare.html

7. https://www.bnnbloomberg.ca/rate-hike-pause-puts-retirement-investors-in-a-sweet-spot-1.1875667

8. https://www.morganstanley.com/ideas/investment-outlook-2023-year-patient-selective

9. https://www.reuters.com/markets/rates-bonds/bank-canada-hikes-rates-becomes-first-major-central-bank-signal-pause-2023-01-25/

10. https://am.jpmorgan.com/us/en/asset-management/institutional/insights/market-insights/market-updates/on-the-minds-of-investors/what-to-do-with-fixed-income-in-2023/

11. https://www.bankrate.com/banking/federal-reserve/economic-indicator-survey-recession-risks-january-2023/

12. https://www.cnn.com/2023/01/24/economy/eurozone-recession-growth/index.html

13. https://www.bnnbloomberg.ca/rate-hike-pause-puts-retirement-investors-in-a-sweet-spot-1.1875667

14. https://am.jpmorgan.com/us/en/asset-management/institutional/insights/market-insights/market-updates/on-the-minds-of-investors/what-to-do-with-fixed-income-in-2023/

15. https://am.jpmorgan.com/us/en/asset-management/institutional/insights/market-insights/market-updates/on-the-minds-of-investors/what-to-do-with-fixed-income-in-2023/

16. https://www.bnnbloomberg.ca/rate-hike-pause-puts-retirement-investors-in-a-sweet-spot-1.1875667


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