The Future State of Fixed Income

Inflation, rate rises, war, and crises of various stripes: A lot has changed in the world since we published Preparing for the Big Shift, our 2021 fixed income survey.

Our latest research finds that while investors are indeed adapting their portfolios to the backdrop of inflation and rate hikes in the short term, there are deeper trends shaping the future state of fixed income portfolios.

Executive Summary

Two of the key themes we reported on last year remain very much at the fore. First, ESG continues to rise in investors’ priorities, with a growing number of investors now pursuing Paris alignment within fixed income.

Second, indexing continues to prove its value. Fee pressure and continually improving transparency in fixed income markets are two factors causing investors to embrace these strategies and gain efficient access in sectors where they are increasing their exposure.

This year, we report on a group of nascent trends as investors look for new sources of return and new approaches to meeting their objectives. The shift toward private markets is intensifying, with implications for both the size and liquidity profile of public fixed income allocations. Investors are also showing an appetite for new, systematic fixed income approaches.

Collectively, these changes point not only to where fixed income is now, but also to where it is heading — and how investors globally will implement it in the near future.

About the Survey

The 2022 State Street Global Advisors fixed income survey canvassed the views of major investors across the globe to help better understand where the fixed income market is and where it is heading. The qualitative and quantitative survey was conducted in mid-2022 and was administered by an independent third-party firm not affiliated with State Street Global Advisors. State Street Global Advisors is identified as the study sponsor. A total of 700 global institutional investors responsible for asset-allocation decisions for top pension funds, wealth managers, asset managers, endowments, foundations and sovereign wealth funds participated in the study.

The 2022 State Street Global Advisors fixed income survey

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Footnotes

1 See, for example, Fixed Income: Preparing for the Big Shift, State Street Global Advisors, 2021.
2 A YTD decline of 16.80%, as of June 30, 2022. Source: State Street Global Advisors.
3 640 bps, as of June 30, 2022. Source: State Street Global Advisors.
4 n=550. Only 12% of respondents disagreed with the statement.

Originally Posted October 3, 2022 – The Future State of Fixed Income

Disclosures

About State Street Global Advisors

For four decades, State Street Global Advisors has served the world’s governments, institutions and financial advisors. With a rigorous, risk-aware approach built on research, analysis and market-tested experience, we build from a breadth of index and active strategies to create cost-effective solutions. As stewards, we help portfolio companies see that what is fair for people and sustainable for the planet can deliver long-term performance. And, as pioneers in index, ETF, and ESG investing, we are always inventing new ways to invest. As a result, we have become the world’s fourth-largest asset manager* with US $3.48 trillion† under our care.

* Pensions & Investments Research Center, as of December 31, 2021.
 This figure is presented as of June 30, 2022 and includes approximately $66.43 billion of assets with respect to SPDR
products for which State Street Global Advisors Funds Distributors, LLC (SSGA FD) acts solely as the marketing agent.
SSGA FD and State Street Global Advisors are affiliated.

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In partnership with FT Longitude, a Financial Times company. This survey was conducted in May of 2022 via an online survey instrument (n=700) and telephone interviews (n=5). Respondents were limited to senior leaders and senior portfolio managers who are directly involved in fixed income portfolio construction and investment decisions at pension funds, wealth managers, asset managers, endowments, foundations and sovereign wealth funds.

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Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk (as interest rates raise, bond prices usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.

International Government bonds and corporate bonds generally have more moderate short-term price fluctuations than stocks, but provide lower potential long-term returns.

Investing in high yield fixed income securities, otherwise known as “junk bonds”, is considered speculative and involves greater risk of loss of principal and interest than investing in investment grade fixed income securities. These Lower-quality debt securities involve greater risk of default or price changes due to potential changes in the credit quality of the issuer.

Investing in foreign domiciled securities may involve risk of capital loss from unfavorable fluctuation in currency values, withholding taxes, from differences in generally accepted accounting principles or from economic or political instability in other nations.

The returns on a portfolio of securities which exclude companies that do not meet the portfolio’s specified ESG criteria may trail the returns on a portfolio of securities which include such companies. A portfolio’s ESG criteria may result in the portfolio investing in industry sectors or securities which underperform the market as a whole.

ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETFs net asset value. Brokerage commissions and ETF expenses will reduce returns.

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Exp. Date: 8/31/2023

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