JPMorgan Predicts High Single-Digit Returns for US Corporate Bonds in 2023

According to Yahoo News, JPMorgan Chase & Co. anticipates high single-digit returns for US corporate bonds in 2023, driven by lower bond yields and relatively benign default rates. In a soft landing scenario, the bank's analysts predict 8% returns for investment grade bonds and 9% for high yield bonds, according to Steve Dulake, global head of credit research at JPMorgan. He spoke at a Bloomberg Intelligence conference on Thursday. Dulake explained that lower rates, not spreads, are the primary drivers of returns. He also praised companies for taking advantage of capital market tailwinds, particularly since the Labor Day long weekend holiday. JPMorgan expects the US to experience slowing growth but avoid a recession, with inflation moderating back toward the Federal Reserve's 2% target. The bank now anticipates the Fed to cut rates approximately every six weeks. JPMorgan projects high grade net issuance to be on par with or lower than this year, as concerns around balance sheet resiliency and refinancing risks have eased. Dulake predicts a default rate of below 3% for junk and 3.25% for loans. He also noted that private capital has helped to elongate the current credit cycle. However, Dulake expressed concern about potential volatility in the rates market, particularly during supply periods and government bond auctions in the coming year.