Shangbo Investment Management Company's Co-Investment Director and Managing Director Jeff Klingelhofer wrote that the global fixed income market experienced turbulence again in 2023. However, the new year is a good time to deploy fixed income through interest rate adjustments to increase high income sources and overall returns, especially to offset other expensive asset classes. In terms of interest rate changes, Shangbo Investments expects a smaller rate cut in 2024, unless the economic contraction exceeds expectations. The current market expectation of a 125 basis point rate cut in 2024 is considered somewhat aggressive. The Federal Reserve is still considering the issue of rising inflation, but with the labor market showing enough resilience, there is no need for a significant rate cut now. The past two years have been the end of the era of "low-rate alchemy". Previously, low interest rates and cheap funding costs drove demand and supported asset markets, but growth without liquidity became unsustainable. In 2022 and 2023, the Federal Reserve focused on suppressing inflation and significantly raising capital costs, causing a sharp turn of events. Hawkish policies led to meager fixed income returns in 2022, but laid the foundation for a rebound at the end of 2023, making investors optimistic about fixed income asset returns in 2024. Fixed income will yield high returns Shangbo Investment believes that the current level of interest rates and the rebound at the end of the year indicate that the meager returns brought by fixed income are no longer sustainable. The Fed's rate hike cycle has essentially ended, and the question now lies in the number of rate cuts next year. Although the economy may continue to slow down and inflation may return to target levels, the Fed is not expected to make significant rate cuts unless there is a significant economic downturn, leading to interest rates higher than current market expectations. Therefore, Shangbo Investment predicts that fixed income will return to its past mode of operation in 2024 - seeking to achieve high returns while guarding against the impact of economic recession. When the economy begins to slow down, fixed income can act as a buffer due to its inverse or low correlation with other risky assets. This forms the basis of Shangbo Investment's outlook for global fixed income in 2024. Increased likelihood of economic recession Shangbo Investment believes that even a slight economic recession could hinder the return of the fixed income market to the right track this year due to macroeconomic factors. Shangbo Investment made a similar prediction last year, and the Federal Reserve's aggressive tightening policy since March 2022 is expected to eventually lead to a slight economic contraction. In an environment of economic recession, we often see credit card and auto loan delinquencies and defaults, significant slowdown in housing transactions, weakened consumer confidence, declining interest coverage ratios, and increased demand for capital expenditure projects by companies to offset additional borrowing costs. All of this is happening. The cost of government debt repayment is skyrocketing, while central and local government revenues are falling behind expectations, leading to budget deficits in the current and future fiscal years. Various phenomena increase the likelihood of an economic recession. Although the strength of consumption and the labor market has delayed the recession, this strength is now weakening. Rate cuts are expected to be relatively small In terms of interest rate changes, Shangbo Investment stated that unless the economic contraction significantly exceeds expectations, the current market expectation of a 125 basis point rate cut in 2024 is somewhat aggressive. The Federal Reserve is still concerned about rising inflation, but with the labor market showing enough resilience, there is no need for a significant rate cut now. In the next two years, inflation could halt any aggressive easing cycle at any time. The Federal Reserve has clearly stated its 2% inflation target, and the current core inflation rate is about twice that level, so the Fed must be concerned about how long inflation will stay above the target. In addition, Shangbo Investment predicts that there will be no direct recession impacting the economic system in 2024, and the Federal Reserve should signal to investors that "recessions arise from economic cycles rather than emergency crises."