Summary
Political uncertainty in South Africa and Brazil has lifted sovereign debt interest rates in those countries to above 10%. The global fallout from the invasion of Ukraine has pushed Russian interest rates into the double-digits. But interest rates around the rest of the world generally are much lower, as they are in Europe and the U.K., or are even flat at 0.4%, such as in Japan. We would avoid over-weighting foreign-government fixed-income securities at this time, given their volatile yields, sovereign risks, and repatriation issues. In the U.S., the Federal Reserve is winding down its fight against inflation, after having raised the federal funds rate 10 times to the current level of 5.0%-5.25%. We look for long-term U.S. interest rates to remain relatively stable over the next few months, but then move lower as unemployment rises and the economy teeters on recession. Our advice to fixed-income investors seeking current returns is to focus on short to intermediate (two-year to seven-year) U.S. Treasuries and floating-rate securities. We recommend paring back positions in inflation-protected securities as inflation rates may have peaked. For specific ideas among closed end funds, exchange traded funds, preferred stocks, and common stocks, see our Fixed Income Strategy Report.
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