Navigate an uncertain fixed income market with flexibility and agility

Outlook 2023Navigate an uncertain fixed income market with flexibility and agility

The year 2022 has presented a challenge for investors across asset classes. Significant repricing in both government bonds and credit markets has contributed, as markets have struggled with the implications of global inflation, war, and slowing growth. The backdrop is certainly challenging: Central banks will likely be attempting to achieve an immaculate (and historically elusive) soft landing, taming inflation while skirting the many clear risks.

Fixed income markets face a rapidly changing rate, currency, and credit environment over the next 12 months, presenting both risks and total return opportunities not seen in years.

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Daniela Mardarovici, CFA and Co-Head of US Multisector Fixed Income discusses how bonds and opportunities across fixed income markets may be a silver lining for investors after a stormy 2022.

Fixed income asset class positioning

Our approach during this uncertain market regime highlights the need to be tactical and flexible in actively taking advantage of opportunities as they arise.


Against a backdrop of a determined, aggressive Fed, slowing global growth, and moderating inflation, we believe the rise in Treasury yields this year presents an attractive entry point to add duration with limited downside.


We believe defensive positioning is appropriate, with a preference for highly rated investment grade credit in defensive sectors.

Emerging markets debt

We retain a cautious outlook, given a mixed picture for underlying fundamentals alongside varied region-specific impacts from the global macroeconomic environment.


In the structured security market overall, fundamentals are stable but facing slower growth. Across most sectors, we are maintaining current positioning.


While valuations appear fundamentally stretched, we believe that barring a dramatic shift in Fed policy, and given the backdrop of weakening global growth, further upside remains likely.

Turning insights into action

Investment solutions to consider

Delaware Diversified Income Fund (DPFFX)

Overall Morningstar ratingTM

Morningstar rating Morningstar rating Morningstar rating Morningstar rating

A flexible core bond fund designed to weather market cycles

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Delaware Ivy Limited-Term Bond Fund (ILTIX)

A flexible short-term bond fund designed with the goal of weathering market cycles

Learn more

Delaware Strategic Income Fund (DUGIX)

A multisector bond fund designed for high income

Learn more

Source: Morningstar. Data as of 9/30/2022 unless otherwise noted. Morningstar ranking is based on Morningstar risk-adjusted return measure that accounts for variation in a managed product's monthly excess performance. Past performance is no guarantee of future results.

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The views expressed represent the investment team’s assessment as of December 2022 and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice.

Investing involves risk including the possible loss of principal.

Past performance does not guarantee future results.

Fixed income securities and bond funds can lose value, and investors can lose principal as interest rates rise. They also may be affected by economic conditions that hinder an issuer’s ability to make interest and principal payments on its debt. This includes prepayment risk, the risk that the principal of a bond that is held by a portfolio will be prepaid prior to maturity at the time when interest rates are lower than what the bond was paying. A portfolio may then have to reinvest that money at a lower interest rate.

International investments entail risks including fluctuation in currency values, differences in accounting principles, or economic or political instability. Investing in emerging markets can be riskier than investing in established foreign markets due to increased volatility, lower trading volume, and higher risk of market closures. In many emerging markets, there is substantially less publicly available information and the available information may be incomplete or misleading. Legal claims are generally more difficult to pursue.

© 2022 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

The Morningstar RatingTM for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.

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