So I think the opportunity for investment grade corporates in 2023 is going to be bottoms up security of selection. You know, it's less about the Fed's tightening cycle and more about what companies are going to be winners and what companies are going to be losers.

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The volatility and the Treasury market's been extremely high. If we look at the MOVE index, which is basically the bond market’s equivalent of the VIX, it's at levels we haven't seen outside of a couple of days in March of 2020, all the way going back to the global financial crisis. So, that's the risk-free asset and that volatility and the risk-free asset leads to volatility in all other asset classes. So, you know, the Fed's rate hike cycle has been very aggressive. It's gone on for a very long time. And I think if people can start to see the other end of that, see that, you know, see across the, see across the horizon, they can start focusing on, you know, what do I do after that, after the Fed?

As we think less about a Fed pivot and more about a Fed pause, it's started to become more about dispersion and credit selection. And who are the winners and who are the losers? So when the market's just driven by rate volatility, it's really, really tough. It's really hard to try to make money. But if we settle down and kind of look forward, we really feel like that's an environment that fits our strategy and fits what our research people do from a research intensity standpoint at Columbia Threadneedle Investments.

People are focusing on the fact that the ten-year Treasury has gone from 50 basis points in the middle of 2020 to north of 4% now. Well, over the last 15 years, the average rate for the ten-year Treasury is right about where we are here at 4%. So it's different than what we've seen over the last couple of years, but it's not that different from what people have seen historically.

So the higher yield environment has two impacts. Number one, from a company perspective, again, they're used to borrowing money at 2% and 3% and now they're borrowing money at 5% and 6%. So that matters. Thankfully, companies created a lot of liquidity for themselves in 2020 and 2021. Again in 2020 - given the COVID uncertainty - companies borrowed $2.1 trillion in our marketplace. In 2021, they followed that up by borrowing $1.7 trillion, and most of that is still liquidity sitting on their balance sheet. So companies have tremendous financial flexibility. They've pushed out the refinancing wall. So, you know, the impact of higher rates is going to matter eventually. But it's not something that is worrisome right now for most companies. And then on the demand side, higher rates are awesome from the ability to put money to work for clients. Again, we were struggling with the ten-year Treasury at 50 basis points and the yield of the investment grade corporate market at 1.75% at the end of 2020. Now it's north of 6%. So the ability to buy bonds for our client portfolios at north of 6%, and oh, by the way, the other nice attractive feature is the fact that dollar prices because of that move in rates and the fact that we had so much issuance in ‘20 and ‘21 at low yields, those dollar prices now in many instances are in the $70s, in the $60s. So, you know, to combine 6% yields, which we haven't seen since the global financial crisis, with dollar price discounts that we also haven't seen since the global financial crisis, when we think the fundamentals of companies are really, really strong and their liquidity, is really, really good, that's exciting.

There are risks associated with fixed-income investments, including credit risk, interest rate risk, and prepayment and extension risk. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer term securities. 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. Securities products offered through Columbia Management Investment Distributors, Inc., member FINRA. Advisory services provided by Columbia Management Investment Advisers, LLC. Columbia Threadneedle Investments (Columbia Threadneedle) is the global brand name of the Columbia and Threadneedle group of companies. © 2023 Columbia Management Investment Advisers, LLC. All rights reserved. 5395566