Upside surprises in economic data pushed interest rates up and pressured the bond markets in August, while the introduction of the Federal Reserve’s dovish new policy framework perpetuated the rally in risk assets.
The Fed has continued to reinforce its commitment to restoring employment to pre-pandemic levels, stating that policy rates will remain near zero until the labor market achieves maximum employment and inflation averages 2% over time, which requires inflation to moderately exceed 2% for some time.
The latest Summary of Economic Projections from the Fed suggests policy rates remaining grounded at current levels through 2023; however, we are skeptical about the achievability of the Fed’s inflation goal at a time when the disinflationary influences of technological innovation and the demographic trend of an aging population arguably hold a greater impact on the rate of inflation than central bank policy does.
The BlackRock Strategic Income Opportunities Fund posted positive performance for the month of August, driven by our global credit positioning and exposures to U.S. high yield, agency mortgage-backed securities (MBS) and securitized assets. The fund’s duration positioning (sensitivity to interest rate movements) dragged on returns as rates ticked up.
Head of U.S. Multi-Sector Fixed Income
Chief Investment Officer of Global Fixed Income and Head of the Global Allocation Team