**Interest Rates**: Central Bank Hikes Propel Fixed Income – Find Out How Yield Will Persist even with Rate Cuts Coming!

In New York City, interest in fixed income investments has been revitalized by recent central bank rate hikes, bringing back yields to the market. Despite the possibility of rate cuts in the near future, experts believe this trend will continue.

Investors are advised to be selective in fixed income and credit investments during the second quarter. Short-term government bonds and emerging market hard currency debt are favored, while caution is advised when it comes to investment grade credit due to tight spreads.

Looking ahead five years, a strategic view emphasizes an overweight position in inflation-linked bonds to hedge against persistent inflation pressures. Additionally, a preference for short-term bonds over long-term options is highlighted due to the potential for rising yields and increased term premiums.

Market conditions have shifted dramatically over the past decade, with negative-yielding bonds disappearing almost entirely. The market value of global negative-yielding debt has plummeted, marking a significant change in the fixed-income landscape. Central banks’ efforts to combat inflation post-pandemic have led to higher yields, with U.S. 10-year yields hitting multi-decade highs last year.

A tactical approach is recommended for the next six to twelve months to navigate the ongoing volatility in long-term bond yields and tightening U.S. credit spreads. Neutral positions on high-yield credit and a preference for the euro area in this asset class are encouraged. Despite rising default rates, high-yield credit remains attractive due to its sensitivity to interest rate volatility.

Over the long term, an overweight position in developed market inflation-linked bonds is advocated, reflecting concerns about increasing debt loads and bond supply. Private credit is favored over public credit, offering better risk compensation and greater demand as banks restrict lending.

In conclusion, the shifting landscape of fixed income investments presents opportunities for investors to be selective and strategic in their allocation. By focusing on short-term government bonds, euro area high yield credit, and emerging market hard currency debt, investors can navigate the evolving market conditions and maximize returns.