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January 31, 2013

The managers of T. Rowe Price's fixed income funds recently offered their outlooks in shareholder reports covering the six months ended November 30, 2012.

Treasury yields are likely to rise as the U.S. and global economies continue to recover.

Brian Brennan

We expect intermediate- and long-term Treasury yields to remain range-bound in the near term as sentiment vacillates on positive and negative news. Over the longer term, however, we believe there is a strong probability that yields will rise from recent lows as global growth picks up and the U.S. economy continues to slowly grind its way to recovery.

Nevertheless, fixed income markets should continue to benefit from solid fundamentals and demand for high-quality bonds with attractive yields.

Daniel Shackelford
Daniel Shackelford, New Income Fund

Generally, we believe that investors are well served in this environment by broadening their search for yield. Strong demand and solid fundamentals in many sectors should continue to provide a source of support for bond performance.

Edward Wiese
Edward Wiese, Short-Term Bond Fund

Despite concerns about overstretched valuations throughout fixed income, demand for high-quality bonds offering relatively attractive yields remains strong and provides a supportive technical environment for our holdings.

Steven Huber
Steven Huber, Strategic Income Fund

Favorable supply and demand trends could drive further returns over the near term—particularly if, as we expect, global central banks continue to provide accommodative monetary policies. Our overall view is that the U.S. economy will slowly improve, China's economy will avoid a hard landing and stabilize in the coming months, and the eurozone will struggle for several more years as it gets its fiscal house in order.

Strong financial positions and an improving U.S. economy help the outlook for buyers of corporate bonds.

David Tiberii
David Tiberii, Corporate Income Fund

The technical environment is still encouraging, given generally low yields and investor demand for corporate bonds. We expect this situation to continue for the foreseeable future. Economic growth remains slow, but its steady pace is providing corporations with a stable operating environment.

Charles Shriver
Charles Shriver, Personal Strategy Funds

Personal Strategy Balanced
Personal Strategy Growth
Personal Strategy Income

There are reasons for optimism, however. U.S. economic data are showing incremental improvements in employment, housing, and retail spending. Corporate balance sheets and earnings remain strong even as earnings growth decelerates.

High yield bonds remain one of the most attractive fixed income investment options, although sustaining recent performance levels will be difficult.

Mark Vaselkiv
Mark Vaselkiv, High Yield Fund

Looking ahead, high yield still looks like one of the best places to invest within the fixed income universe. We believe that the high yield market can generate a coupon-like return in 2013. However, the opportunities to generate capital appreciation appear limited.

Yield and share price will vary with interest rate changes. Investors should note that if interest rates rise significantly from current levels, bond fund total returns will decline and may even turn negative in the short term. There is also the risk one of a fund's holdings will have its credit rating downgraded or will default, potentially reducing the fund's income level and share price. High yield bonds carry a greater default risk than higher-rated bonds.

This is provided for informational purposes only and is not intended to reflect a current or past recommendation, or investment advice of any kind. Opinions and commentary do not take into account the investment objectives or financial situation of any particular investor or class of investor. Investors will need to consider their own circumstances before making an investment decision.

Copyright 2014, T. Rowe Price Investment Services, Inc., Distributor. All rights reserved.