Scenario
Strategy
Stagflation
Fed continues to aggresively hike rates
Lower duration to reduce interest rate risk via:
Ultra-short bonds
Floating rate assets
Short-term municipal bonds
Soft Landing
Fed pauses while waiting for confirming evidence that recent hikes worked and economy can grow moderately
Increase credit risk for better return potential via:
Corporate bonds
Flexible multi-sector
Short-duration high yield bonds
High yield bonds
Emerging market bonds
Reduce credit risk and focus on high-quality and duration-centric positioning via:
Core bonds
Core plus/intermediate bonds
Intermediate/long-municipal bonds
Recession
Continued rate hikes tip economy into recession
Source: PGIM Fixed Income as of November 2022