Fixed income investing: Staying focused in uncertain times.

Challenging conditions… 

U.S. trade tariffs and sticky inflation have led to a negative tone in the global economy. While recent downward movements in the equity market are currently in the spotlight, fixed-income investors are not immune from the perils of challenging market environments. The recent wildfires in California and the lingering effects of the 2023 banking crisis both come immediately to mind. Bank closures and the threat of closures remain on investors’ minds even as the devastation in the West make the possibility of default (a peril typically associated with the corporate sector) a reality that has now surfaced in the municipal, mortgage, and sovereign debt sectors. To add to the woes, if you are inclined to think the worst of politics and politicians and game out worst-case-scenarios, perhaps default on Federal Deposit Insurance Corporation (FDIC) insured certificates of deposit (CD) might cross your mind for a fleeting moment even as regional bank concerns and a volatile rate market create added uncertainties. 

…are not unusual 

Concerning events? Sure. Yet, we’ve been here before (time and time again). The savings and loans crisis of the 90’s, the internet bubble, the great financial crisis in the 2000’s, and let’s not forget the economic shut down from COVID-19 are all in the rearview mirror. We firmly believe that today’s concerns will come and go, just as those that have come before have gone away. 

Credit analysis: The focus that keeps us calm 

Today, FDIC insurance holds fast, protecting investors’ principal in the CD market—and we expect it to continue to do so. Banking crises continue to cycle through every so many years. The most recent, in 2023, saw a handful of regional banks including Silicon Valley Bank and Signature Bank fail, highlighting pockets of instability in the sector. These pockets of stress create fear, volatility, and undue stress for investors. 

Looking back through history, credit research has enabled us to stay ahead of the challenges. Simply put, credit matters. Even in the case of investments insured by the FDIC, we do not subscribe to the notion the government backstops are the ultimate lifeline. Nor do we support the view that credit review is a onetime shot. Credit analysis is an ongoing process. It is done for two primary reasons, first to protect the portfolio from deteriorating credit where loss of principal is possible. The second reason is to find opportunities to generate gains. Does credit analysis mean that nothing can ever go wrong? No…but we believe it tilts the odds in our favor and may give investors a reason to rest a little easier at night.

Important information 

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. All information as of the date indicated. This information should not be relied upon by the reader as research or investment advice and is for educational purposes only. Statements that are not factual in nature, including opinions, projections, and estimates, assume certain economic conditions and industry developments and constitute only current opinions that are subject to change without notice. Certain economic and market information contained herein has been obtained from published sources prepared by other parties, which in certain cases have not been updated through the date hereof. While such sources are believed to be reliable, neither SEI nor its affiliates assume any responsibility for the accuracy or completeness of such information and such information has not been independently verified by SEI. There are risks involved with investing, including loss of principal. Information in the U. S. is provided by SEI Investments Management Corporation (SIMC), a wholly owned subsidiary of SEI Investments Company (SEI). SEI Fixed Income Portfolio Management is a unit of SIMC.