In an article for SeekingAlpha, Principal Financial Group previews the third-quarter and lays out the opportunities and risks it sees in fixed income. Overall, the firm expects the asset class to have a modest tailwind given its expectations for a recession by the end of the year.

As evidence, Principal Financial cites the unprecedented tightening over the last 16 months, slowing economies all over the world, tightening credit standards, and the inverted yield curve. It believes that the next 2 hikes will be the Fed's last in this hiking cycle. 

However, the firm doesn’t believe the central bank will be successful in engineering a ‘soft landing’ despite this increasingly becoming the consensus position over the last couple of months. Instead, the firm anticipates a final lurch higher in yields with the breakout ultimately being rejected.

Amid this period of volatility and uncertainty, the firm believes that active funds are best positioned to take advantage of market conditions, and it sees the most upside in high-yield fixed income given that the firm’s base case is for a mild recession. 

Finsum: In Q3, Principal Financial Group sees upside for fixed income due to a softening economy, and it sees the most value in high-yield.