Active fixed income
April 27, 2023
News about Silicon Valley Bank broke in March, sparking bank failures, runs on bank deposits, and emergency central bank meetings worldwide. The higher yields that we entered the year with, however, continue to help. They have cushioned shocks and provided stability—and positive returns.
Vanguard Active Fixed Income Perspectives is our in-depth quarterly commentary on the bond markets, with sector-by-sector analysis and a summary of how those views affect Vanguard’s actively managed bond funds.
Bonds provided stability despite a quarter of significant volatility. The Bloomberg U.S. Aggregate Bond Index finished in the black for the last three and six months. Corporate investment-grade and high-yield credit produced the highest returns in the first quarter.
We expect elevated volatility to create risks and opportunities in coming months. Recent events have reaffirmed our expectation of a 2023 recession, and they point to a more cautious path ahead for monetary policy.
We added oversold issuers, particularly large banks, during the market stress, but the time for a full risk-on moment has not yet arrived. We remain biased toward higher-quality segments that can weather a weakening economy. We’ve likely seen the peak in yields for this cycle—at some point, duration will become an investor’s best friend.
Note: Investments in bonds are subject to interest rate, credit, and inflation risk.