The good news for 2023 is that fixed income has its last name back, meaning yields are higher, there is really income to be earned.

There are several areas that I think can do well in 2023, in particular with higher Treasury yields and also higher risk premiums. I think there are three areas in particular that can perform quite well. The first is the agency mortgage backed securities market. This is a government guaranteed market. But given the elevated level of interest rates now provide yields near 6%, that can provide very attractive outcomes in a high quality asset class. We also think investment grade corporate bonds can do quite well. These are companies with low leverage and high credit quality that don't have a lot of economic volatility. So if the economy goes into a weak patch, they can be well prepared to handle that. But again, their yields are also much higher than they have been historically. We also like municipal bonds in 2023. Municipals are an area that, as inflation has risen, that has actually improved the tax revenue base of a lot of municipalities. And municipal bonds are trading at yields on a tax exempt basis that we haven't seen in two decades. So really an attractive entry point for investors who need that tax exempt income.

While I might have a sense of caution on the economic outlook, I have a tremendous sense of optimism for future returns in the bond market. Investors need to remember that higher yields provide a sense of cushion against future volatility. At the beginning of 2022, yields were exceptionally low. There was no cushion. Yields are significantly higher now. And even if we see a Federal Reserve that is continuing to raise interest rates to fight inflation, the starting cushion is significant and can buffer a lot of potential volatility and smooth that ride for investors such that future returns can be much more attractive.

The views expressed are as of December 2022, may change as market or other conditions change and may differ from views expressed by other Columbia Management Investment Advisers, LLC (CMIA) associates or affiliates. Actual investments or investment decisions made by CMIA and its affiliates, whether for its own account or on behalf of clients, may not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not take into consideration individual investor circumstances. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon and risk tolerance. Asset classes described may not be appropriate for all investors. Past performance does not guarantee future results, and no forecast should be considered a guarantee either. Since economic and market conditions change frequently, there can be no assurance that the trends described here will continue or that any forecasts are accurate.

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