MacKay Shields Global Fixed Income

While yields remain compelling, tight credit spreads and macro uncertainty call for a focus on high-quality assets, active security selection, and careful duration management.

Trade de-escalation supports modest growth, but inflation risks, housing headwinds, and weaker labor supply may limit momentum and delay Fed easing.

As discussions around the future of Fannie Mae and Freddie Mac re-emerge, investors are weighing what privatization could mean for the $6.6T U.S. mortgage market. While a near-term resolution is unlikely, the stakes are high. Without strong government backing, we could see higher mortgage rates, reduced liquidity in agency MBS markets, and challenges to housing affordability—especially for low- and moderate-income communities. The path forward is complex, but understanding the risks is essential.

The US fiscal landscape is deteriorating, with the debt-to-GDP ratio projected to reach 120-130% over the next decade. This fiscal decline, exacerbated by potential new legislation that could add $3 trillion to deficits, is expected to bring increased volatility to the Treasury markets. The 5-year Treasury yield, a key indicator of the government's cost of funding, is rising, and the yield curve has steepened due to a mix of fiscal and monetary policy factors. Stay informed and consider how these shifts may affect your investment strategies.

Recent tariff announcements have sparked significant market reactions, leading to wider spreads and increased recession risks. While the new tariffs could impact supply chains and economic growth, especially in Asia, agency mortgages are less vulnerable due to its liquidity and government support.

View the Macro Outlook for 2Q 2025.

For fixed income investors, US banks should continue operating within a robust regulatory framework despite potential changes. Banks' first line of defense is their profitability, and the likely cancellation of proposed regulations should benefit their bottom lines.

In this video, Neil Moriarty analyses what makes the Strategic Bond Strategy different, using last year's snap elections in Europe and the UK, which created market volatility, as an example.

Hear from Neil Moriarty discussing MacKay’s Strategic Bond strategy which focuses on diversified sources of alpha, embracing underappreciated sectors, and leveraging market volatility to identify attractive investment opportunities.

One benefit of higher interest rates has been that many investors have become comfortable holding US Treasuries, and with good reason—they’ve served as a low-volatility, liquid core holding.

With the backdrop of strong economic fundamentals, favorable regulatory shifts, and evolving market dynamics, we believe the US banking sector is positioned as an attractive opportunity set for income seeking investors.

2025 should be another year of solid growth for the US economy. A healthy labor market and high levels of household net worth will support consumer spending.

The bond market in 2025 is positioned for strong performance, driven by a resilient U.S. economy, moderating inflation, and a shift toward a higher steady-state interest rate environment.

How do investors allocate in a late cycle tight spread market environment? Explore how we seek to take advantage of the whole fixed income toolkit, using multiple diversified sources of return to create the flexibility to respond to changing opportunities.

The US banking industry is undergoing significant changes that are creating new markets for fixed income investors. One of those markets is Synthetic Risk Transfers or SRTs.

Recent shifts have widened spreads in conduit CMBS, presenting what we see as a chance to capture enhanced yields with less risk. Especially for BBB rated CMBS, current market conditions suggest potential for price appreciation and attractive returns.

We remain cautiously constructive on investment grade credit and believe that the asset class offers relatively stable carry with yields.

Macroeconomic Outlook for 3Q 2024.

Volatility Brings Opportunity

Despite recent challenges, we believe the commercial real estate market holds resilient investment opportunities.

Mortgage-backed securities offer institutional investors varied investment prospects, particularly as residential and commercial MBS.

With a backdrop of good corporate earnings and moderating inflation, we see credit spreads remaining range bound around current levels.

A number of resiliencies should continue to support growth at or above 2% this year. The risk, however, is that a solid year will slow disinflationary impulses.

The US banking sector is currently facing major stress faced, particularly in commercial real estate. Although bruised, we expect the larger banks to fair well in CRE at the other end.

With short duration bonds currently generating high levels of income, we explain why it is now the time to step out of cash and into short duration bonds.

In navigating 2024’s landscape, concerns around the US budget deficit, along with the required Treasury debt issuance, continue to captivate investors.

Read more to see how investors can enjoy high single-digit yields in a secured investment while still maintaining an investment grade credit rating.

We believe the ability for investors to earn attractive levels of income with less downside risk continues to be at their most attractive level in years.

Neil Moriarty reflects on 2022 and discusses where the opportunity may lie in 2023, and what they feel the Fed’s “stepping down” on interest rate increases means for the bond market.

In our 2023 outlook, the Global Fixed Income team explains why we fervently believe bonds are back and 2023 will be the “Year of the Bond.”

We believe fixed income valuations are meaningfully more attractive and yields have greatly improved investors' income profiles.

2021 saw a transition in fixed income, from economic expansion and easy monetary policy, then to potential tapering and slow stimulus withdrawal.

Global Fixed Income Team - 2022 Outlook

While the global economy overcame from the COVID-19 downturn, some sectors haven’t regained pre-pandemic levels and offering investors great value.

Securitized credit offers benefits to fixed income investors, including diversification benefits, risk mitigation and portfolio efficiency.

In our 2023 outlook, the Global Fixed Income team explains why we fervently believe bonds are back and 2023 will be the “Year of the Bond.”