Menu Our services in the selected location:
  • No services available for your region.
Select Location:
Remember my selection
Your browser is out of date. It has known security flaws and may not display all features of this and other websites

Fixed Income Outlook 4Q 2021

Business as (Un)usual

Almost 20 months since the onset of the pandemic, economic activity and the investment backdrop is anything but usual. Delta spread, shifting demand dynamics and logistical glitches have elongated and broadened issues on the supply side of the economy. Supply bottlenecks have contributed to growth downgrades and major upside inflation surprises. For now, global activity is expansionary, financial conditions are easy, the growth impulse from fiscal spending is still positive and the private sector is sitting on a mountain of excess savings – a highly unusual seat on the way out of a recession. But the backdrop is shifting. A withdrawal of Covid-era easy policies is raising questions about implications for the economy and financial assets – all the more so given asset valuations are at the higher end of their historical range. Overall, the near term environment has turned more challenging and we have moved to a more cautious investment stance.

CIO Perspectives

Sam Finkelstein

co-Head of Fixed Income and Liquidity Solutions, Goldman Sachs Asset Management


 

“A resolution of supply side bottlenecks could change the economic narrative in the coming months but the current macro mix of moderating growth, particularly in China, accelerating inflation and a rollback of easy Covid-era policies creates a challenged investment environment.”

Ashish Shah

co-Head of Fixed Income and Liquidity Solutions Goldman Sachs Asset Management


 

"As the global liquidity tide goes out, idiosyncratic risks will go up. From a starting point of high valuations, this outlook favors a moderate allocation to fixed income spread sectors, with greater investment room reserved for security selection."

Macro at a Glance

Supply Chain Issues - Pain in the (Bottle) Neck

Supply bottlenecks have contributed to growth downgrades and major upside inflation surprises, with supply-constrained goods accounting for 80% of the 2021 inflation overshoot in the US1.

 

Source: Goldman Sachs Asset Management, Macrobond. As of September 2021.

Policy Picture

Liquidity Rollback

The flow of global liquidity is positive but slowing down, meaning the delta is turning negative, as major central banks taper or conclude asset purchases.

 

Source: Goldman Sachs Asset Management, Bloomberg. As of September 20, 2021. October 2021 onwards reflects Goldman Sachs Asset Management forecasts.

Sustainability Spotlight

Racial economic gaps are stark. Goldman Sachs Investing in Racial Economic Equality and Black Womenomics research highlights racial gaps on many dimensions including earnings, wealth, education, access to capital, housing and health.

 

Munis have an inherent social link with society. Municipal bonds (“munis”) are debt securities issued by US states, cities, counties, and other governmental entities to fund day-to-day obligations and to finance projects in many of the areas that are critical to closing racial gaps such as education, housing and healthcare.

 

Driving inclusive growth through the power of transparency. As a firm focused on inclusive growth, we have partnered with industry peers and two minority-owned underwriters to establish The Municipal Issuer Racial Equity & Inclusion Engagement Framework. Through an associated disclosure questionnaire, we are seeking to fill important data gaps on social issues that are critical for environmental, social and governance (ESG) analysis. We also hope to incentivize increased disclosure and engagement on racial equity and inclusion considerations relating to a range of social issues from law enforcement to community development and food security to healthcare.  

Related Insights

  • GSAM Connect 30 September 2021

    Credit Check-In: The Reach of Chinese Regulations

    In this month’s Credit Check-In, we’re stepping back to take a wide view of what could be the knock-on effects of this latest round of regulatory action in China on credit issuers in the developed markets.

    Read More
  • GSAM Connect 01 July 2021

    Withdrawal Rate

    As we move from recovery to mid-cycle expansion, we think the rate at which policy support is withdrawn will guide financial asset performance. Explore more about where and how we seek to find compelling investment opportunities for our clients’ fixed income portfolios in this environment.

    Read More
  • GSAM Connect 21 January 2021

    Credit Where Credit is Due: ESG in Fixed Income

    We believe environmental, social and governance (ESG) analysis has the potential to generate differentiated insights that can lead to investment outperformance. In this publication, we outline key elements that inform our approach to ESG investing across fixed income markets.

    Read More

Disclosures

Views and opinions expressed are for informational purposes only and do not constitute a recommendation by GSAM to buy, sell, or hold any security. Views and opinions are current as of the date of this presentation and may be subject to change, they should not be construed as investment advice.

Investment grade refers to the quality of a company's credit and to be considered investment grade issue, a company must be rated at 'BBB' or higher. Anything below this 'BBB' rating is considered non-investment grade or high yield.

This material is provided at your request for informational purposes only. It is not an offer or solicitation to buy or sell any securities.

THIS MATERIAL DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY JURISDICTION WHERE OR TO ANY PERSON TO WHOM IT WOULD BE UNAUTHORIZED OR UNLAWFUL TO DO SO.

Prospective investors should inform themselves as to any applicable legal requirements and taxation and exchange control regulations in the countries of their citizenship, residence or domicile which might be relevant.
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice. This material has been prepared by GSAM and is not financial research nor a product of Goldman Sachs Global Investment Research (GIR). It was not prepared in compliance with applicable provisions of law designed to promote the independence of financial analysis and is not subject to a prohibition on trading following the distribution of financial research. The views and opinions expressed may differ from those of Goldman Sachs Global Investment Research or other departments or divisions of Goldman Sachs and its affiliates. Investors are urged to consult with their financial advisors before buying or selling any securities. This information may not be current and GSAM has no obligation to provide any updates or changes.

United Kingdom: In the United Kingdom, this material is a financial promotion and has been approved by Goldman Sachs Asset Management International, which is authorized and regulated in the United Kingdom by the Financial Conduct Authority.

European Economic Area (EEA): This material is a financial promotion disseminated by Goldman Sachs Bank Europe SE, including through its authorised branches ("GSBE"). GSBE is a credit institution incorporated in Germany and, within the Single Supervisory Mechanism established between those Member States of the European Union whose official currency is the Euro, subject to direct prudential supervision by the European Central Bank and in other respects supervised by German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufischt, BaFin) and Deutsche Bundesbank.

Switzerland: For Qualified Investor use only - Not for distribution to general public. This is marketing material. This document is provided to you by Goldman Sachs Bank AG, Zürich. Any future contractual relationships will be entered into with affiliates of Goldman Sachs Bank AG, which are domiciled outside of Switzerland. We would like to remind you that foreign (Non-Swiss) legal and regulatory systems may not provide the same level of protection in relation to client confidentiality and data protection as offered to you by Swiss law.

Asia Pacific: Please note that neither Goldman Sachs Asset Management International nor any other entities involved in the Goldman Sachs Asset Management (GSAM) business maintain any licenses, authorizations or registrations in Asia (other than Japan), except that it conducts businesses (subject to applicable local regulations) in and from the following jurisdictions: Hong Kong, Singapore and Malaysia. This material has been issued for use in or from Hong Kong by Goldman Sachs Asset Management (Hong Kong) Limited, in or from Singapore by Goldman Sachs Asset Management (Singapore) Pte. Ltd. (Company Number: 201329851H) and in or from Malaysia by Goldman Sachs (Malaysia) Sdn Berhad (880767W).

Australia: This material is distributed by Goldman Sachs Asset Management Australia Pty Ltd ABN 41 006 09 9 681, AFSL 2 28948 (‘GSAMA’) and is intended for viewing only by wholesale clients for the purposes of section 761G of the Corporations Act 2001 (Cth). This document may not be distributed to retail clients in Australia (as that term is defined in the Corporations Act 2001 (Cth)) or to the general public. This document may not be reproduced or distributed to any person without the prior consent of GSAMA. To the extent that this document contains any statement which may be considered to be financial product advice in Australia under the Corporations Act 2001 (Cth), that advice is intended to be given to the intended recipient of this document only, being a wholesale client for the purposes of the Corporations Act 2001 (Cth). Any advice provided in this document is provided by either Goldman Sachs Asset Management International (GSAMI), Goldman Sachs International (GSI), Goldman Sachs Asset Management, LP (GSAMLP) or Goldman Sachs & Co. LLC (GSCo). Both GSCo and GSAMLP are regulated by the US Securities and Exchange Commission under US laws, which differ from Australian laws. Both GSI and GSAMI are regulated by the Financial Conduct Authority and GSI is authorized by the Prudential Regulation Authority under UK laws, which differ from Australian laws. GSI, GSAMI, GSCo, and GSAMLP are all exempt from the requirement to hold an Australian financial services licence under the Corporations Act of Australia and therefore do not hold any Australian Financial Services Licences. Any financial services given to any person by GSI, GSAMI, GSCo or GSAMLP by distributing this document in Australia are provided to such persons pursuant to ASIC Class Orders 03/1099 and 03/1100. No offer to acquire any interest in a fund or a financial product is being made to you in this document. If the interests or financial products do become available in the future, the offer may be arranged by GSAMA in accordance with section 911A(2)(b) of the Corporations Act. GSAMA holds Australian Financial Services Licence No. 228948. Any offer will only be made in circumstances where disclosure is not required under Part 6D.2 of the Corporations Act or a product disclosure statement is not required to be given under Part 7.9 of the Corporations Act (as relevant).

Canada: This presentation has been communicated in Canada by GSAM LP, which is registered as a portfolio manager under securities legislation in all provinces of Canada and as a commodity trading manager under the commodity futures legislation of Ontario and as a derivatives adviser under the derivatives legislation of Quebec. GSAM LP is not registered to provide investment advisory or portfolio management services in respect of exchange-traded futures or options contracts in Manitoba and is not offering to provide such investment advisory or portfolio management services in Manitoba by delivery of this material.

Japan: This material has been issued or approved in Japan for the use of professional investors defined in Article 2 paragraph (31) of the Financial Instruments and Exchange Law by Goldman Sachs Asset Management Co., Ltd.

Economic and market forecasts presented herein reflect a series of assumptions and judgments as of the date of this presentation and are subject to change without notice. These forecasts do not take into account the specific investment objectives, restrictions, tax and financial situation or other needs of any specific client. Actual data will vary and may not be reflected here. These forecasts are subject to high levels of uncertainty that may affect actual performance. Accordingly, these forecasts should be viewed as merely representative of a broad range of possible outcomes. These forecasts are estimated, based on assumptions, and are subject to significant revision and may change materially as economic and market conditions change. Goldman Sachs has no obligation to provide updates or changes to these forecasts. Case studies and examples are for illustrative purposes only.

Confidentiality

No part of this material may, without GSAM’s prior written consent, be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorized agent of the recipient.

​© 2021 Goldman Sachs. All rights reserved.

Views are as of Oct 12, 2021.

Date of first use: October 5, 2021.   255039-OTU-1487043