Investors Want to Know When to Get Back into Bonds. Here’s One Manager’s Answer.

Janus Henderson thinks rate hikes are over as its skepticism over a soft landing has grown.

Illustration by II

Illustration by II

Janus Henderson, which is skeptical that global central banks will be able engineer a soft landing and spare major economies from a recession, is now betting that interest rate hikes are over.

Unlike many of its peers, Janus Henderson, which has $287 billion in assets, believes a recession is coming and central banks have little room to raise rates. As a result, the manager expects bonds, whose prices rise as rates fall, to generate strong gains this year.

Last year, the bond market suffered the worst losses in decades as global central banks imposed consecutive rate hikes to curb surging inflation, according to Janus Henderson’s latest report, which is expected to be published on Thursday. In 2023, however, the manager expects the trend to reverse, particularly for sovereign bonds.

“The world economy is set to slow faster than markets expect and is likely to fall into recession. This means interest rate increases will have to go into reverse,” according to the report. “This is very positive for bond markets.”

While many investors believe major central banks will achieve a soft landing at the end of the current tightening cycle, Janus Henderson thinks otherwise. The recent job reports, which showed low unemployment rates and high wage increases, are among the lagging indicators that have given investors a false sense of confidence, according to Jim Cielinski, global head of fixed income. Some leading indicators, such as the shrinking global money supply, have already signaled that the central banks will soon need to reevaluate their contractionary rate policies, he added.


“The world economy is in for a harder landing than people assume. In fact, it is quite likely to shrink,” the report said. “This is likely to happen almost everywhere, with those economies that opened up first — the U.S., then the U.K., followed by Europe, and then eventually Australasia and finally China.”

Besides the gloomy growth prospect, the higher debt burden incurred by rising interest rates may also prompt major world economies to stop raising interest rates soon, according to the report. The recent rate hikes have led the world’s government interest bill to surge 21 percent in 2022, the fastest rate of increase since 1984. “Rising financing costs and rising debt burdens lead to a debt overhang that inhibits governments from funding their activities or investing for the future,” according to the report.

Janus Henderson expects sovereign bonds of all maturities to perform well in 2023. The shorter-dated bonds are already delivering the highest income in 15 years, according to the report. As for longer-dated bonds, they are likely to generate significant capital gains if yields start to fall.

“There are lots of different ways investors can exploit today’s market conditions, but they are all positive,” according to the report. “With greater variation than in recent years across the span of maturities and in yield levels from one sovereign to another, there are real opportunities for active fund managers to add value for investors.”