What is the outlook for fixed income in 2024?
Key central bank rates and bond yields remain high globally and are likely to remain elevated well into 2024 before retreating. Further, the chance of higher policy rates from here is slim; the potential for rates to decline is much higher.
Vanguard's active fixed income team believes emerging markets (EM) bonds could outperform much of the rest of the fixed income market in 2024 because of the likelihood of declining global interest rates, the current yield premium over U.S. investment-grade bonds, and a longer duration profile than U.S. high yield.
Looking at the asset class's historical performance leads us to believe that high yield is poised to produce a positive return in 2024, albeit not as robust as that experienced in 2023. We believe that the economy is not rolling over and that a recession is likely to be at least six months away.
- Inflation. ...
- Interest rates. ...
- Growth. ...
- Portfolios. ...
- Inflation: Return to central banks targets in 2024. ...
- Interest rates: Likely cut around the middle of 2024, but won't go back to zero. ...
- Growth: Expected to slow in the US and remain weak in Europe and China.
Wall Street analysts' consensus estimates predict 3.6% earnings growth and 3.5% revenue growth for S&P 500 companies in the first quarter. Analysts project full-year S&P 500 earnings growth of 11.0% in 2024, but analysts are more optimistic about some market sectors than others.
Credit spreads remain very tight, and the yield you can earn when adjusted for duration favors high-quality intermediate bonds. So, investors are not really being paid to take on credit or interest rate risk.” Others have said that 2024 might be the time to invest toward the longer end of the risk-return spectrum.
As inflation finally seems to be coming under control, and growth is slowing as the global economy feels the full impact of higher interest rates, 2024 could be a compelling year for bonds.
Unless you are set on holding your bonds until maturity despite the upcoming availability of more lucrative options, a looming interest rate hike should be a clear sell signal.
Short-term bond yields are high currently, but with the Federal Reserve poised to cut interest rates investors may want to consider longer-term bonds or bond funds. High-quality bond investments remain attractive.
Moore expects that prices of high-quality corporate bonds will recover strongly once the economy and inflation slow, and the Fed begins cutting rates to stimulate growth.
Is fixed income a good investment now?
Here are 3 reasons why now's a good time to evaluate the role of high-quality fixed income exposure in your portfolio. Bonds are providing healthier yields than we've seen since before the 2008 global financial crisis. Higher current yields support a much-improved outlook for bond returns going forward.
Fixed income investing can be a particularly good option if you're living on an actual fixed income and looking for ways to maximize your savings.
In current market circ*mstances, with higher bond yields, fixed income investments have become an attractive asset class again from a risk-return perspective. Apart from the attractive yield, bonds also offer resilience for adverse market developments in risk assets like equities.
Third, many Wall Street analysts predict that the S&P 500 will jump in 2024, but with a lower return than last year. Sure, they're guessing, just as I am. However, they think that moderating inflation and the potential for interest rate cuts should be good for stocks.
After a spectacular 2023, stocks are off to the races again in 2024. YTD, the Dow is up 2.72%, the S&P is up 7.28%, and the Nasdaq is up 6.41%. (And that's on top of last year's 13.7%, 24.2%, and 43.4% respectively.)
"2024 is bound to be a better year for homebuyers, if only because of how terrible 2023 was," says John Graff, CEO at Ashby & Graff Real Estate.
As of February 27, 2024, Vanguard High Dividend Yield Index Fund ETF Shares (NYSE:VYM) has an expense ratio of 0.06%. Its portfolio comprises 450 stocks, and net assets totaling $63.3 billion as of January 31, 2024.
CDs are an excellent place to park your cash and earn interest on your balance. Although there's a risk of inflation outpacing CD interest rates, they are virtually guaranteed earnings. Bonds, on the other hand, may deliver higher returns and regular income via interest payments.
Bianco stood by his earlier prediction that the 10-year yield could escalate to 5.5%, aligning with the nominal GDP level. He suggested this increase in the 10-year yield might happen before the end of 2024, likely around the middle of the year.
We are revising up our end-2024 and end-2025 forecasts for the 10-year Treasury yield by 25bp, to 4%. This reflects recent changes to our projections for the federal funds rate.
Will interest rates go down in 2024?
In its March Mortgage Finance Forecast, the Mortgage Bankers Association predicts that mortgage rates will fall from 6.8% in the first quarter of 2024 to 6.1% by the fourth quarter. The industry group expects rates will fall below the 6% threshold in the first quarter of 2025.
| Face Value | Purchase Amount | 30-Year Value (Purchased May 1990) |
|---|---|---|
| $50 Bond | $100 | $207.36 |
| $100 Bond | $200 | $414.72 |
| $500 Bond | $400 | $1,036.80 |
| $1,000 Bond | $800 | $2,073.60 |
Holding bonds vs. trading bonds
After bonds are initially issued, their worth will fluctuate like a stock's would. If you're holding the bond to maturity, the fluctuations won't matter—your interest payments and face value won't change.
| ETF | Expense ratio | Yield to maturity |
|---|---|---|
| SPDR Portfolio Corporate Bond ETF (SPBO) | 0.03% | 5.5% |
| JPMorgan Ultra-Short Income ETF (JPST) | 0.18% | 5.5% |
| iShares 7-10 Year Treasury Bond ETF (IEF) | 0.15% | 4.4% |
| iShares 10-20 Year Treasury Bond ETF (TLH) | 0.15% | 4.6% |
- Money market funds.
- Mutual funds.
- Index Funds.
- Exchange-traded funds.
- Stocks.
- Alternative investments.
- Cryptocurrencies.
- Real estate.
