What is the forecast for bonds in 2023?
We expect generally good performance during the second half of the year, although volatility may increase, especially for high-yield bonds. Corporate bond investments generally performed well during the first half of the year.
Bond funds staged a fourth-quarter comeback in 2023. Through late October, the Morningstar US Core Bond Index, a proxy for the broad fixed-income market, was on pace for a third-consecutive year of losses as uncertainty around a hard or soft landing lingered and interest-rate volatility persisted.
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.
Probably the top fixed income question we've received in 2023 is when it's appropriate to begin moving bond allocations from ultra-short-maturity bonds and money market funds back into core bonds. Gauging by 2024 rate hike expectations, the answer is probably sometime around now.
10-year Treasury yields rose close to 5% in October 2023, but moved below 4% again in at the end of January 2024 as markets anticipated potential changes in Federal Reserve (Fed) interest rate policy. During that same period, yields on short-term Treasuries were mostly unchanged.
Bond Market Performance Rebounds in 2023
This year to date, fixed-income returns are positive, with those bonds that trade with a credit spread having performed better than U.S. Treasuries.
There are several benefits that come along with adding bonds to your investment portfolio, and experts suggest that they can help offset some of the risks taken on by more volatile investments. Pro: Bonds can serve as a source of income. Regular interest payments can be a huge selling point for many investors.
The Corporate Bond Market Outlook for 2024
While our base case is that the rate of economic growth will slow over the first three quarters of the year, we do not expect the U.S. economy will slip into a recession. As such, we expect that downgrades and defaults will remain close to historically normalized levels.
Bond outlooks improve, but stocks' prospects drop on the heels of 2023′s rally. Better things lie ahead for bonds, but the prospects for stocks, especially U.S. equities, are less rosy. Those were the recurring themes among the capital markets assumptions provided by major investment firms as 2023 wound down.
Once a Series I bond is five years old, there is no interest penalty for redemption. Question: Can you determine what the value of a Series I bond will be in future years? inflation rate can vary. You can count on a Series I bond to hold its value; that is, the bond's redemption value will not decline.
Should I move my money to bonds now?
Moving 401(k) assets into bonds could make sense if you're closer to retirement age or you're generally a more conservative investor overall. However, doing so could potentially cost you growth in your portfolio over time.
Including bonds in your investment mix makes sense even when interest rates may be rising. Bonds' interest component, a key aspect of total return, can help cushion price declines resulting from increasing interest rates.
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.
- ProShares High YieldInterest Rate Hedged (BATS:HYHG) ...
- PGIM Floating Rate Income ETF (NYSE:PFRL) ...
- Pacer Pacific Asset Floating Rate High Income ETF (NYSE:FLRT) ...
- ProShares UltraShort 20+ Year Treasury (NYSE:TBT) ...
- ProShares UltraPro Short 20+ Year Treasury (NYSE:TTT)
In December, many investors welcomed the Federal Open Market Committee's unanimous decision to hold rates between 5.25% and 5.5% and signal some rate cuts in 2024. The Federal Reserve's so-called dot plot in December suggested a median fed funds rate of 4.6% in 2024, followed by 3.6% in 2025 and 2.9% in 2026.
We expect bond yields to decline in line with falling inflation and slower economic growth, but uncertainty about the Federal Reserve's policy moves will likely be a source of volatility. Nonetheless, we are optimistic that fixed income will deliver positive returns in 2024.
Interest rate changes are the primary culprit when bond exchange-traded funds (ETFs) lose value. As interest rates rise, the prices of existing bonds fall, which impacts the value of the ETFs holding these assets.
| ETF | Expense ratio | Yield to maturity |
|---|---|---|
| JPMorgan Ultra-Short Income ETF (JPST) | 0.18% | 5.4% |
| SPDR Portfolio Short Term Treasury ETF (SPTS) | 0.03% | 4.5% |
| SPDR Portfolio Intermediate Term Treasury ETF (SPTI) | 0.03% | 4.2% |
| SPDR Portfolio Long Term Treasury ETF (SPTL) | 0.03% | 4.5% |
- Historically, bonds have provided lower long-term returns than stocks.
- Bond prices fall when interest rates go up. Long-term bonds, especially, suffer from price fluctuations as interest rates rise and fall.
The composite rate for Series I Savings Bonds is a combination of a fixed rate, which applies for the 30-year life of the bond, and the semiannual inflation rate. The 4.30% composite rate for I bonds issued from May 2023 through October 2023 applies for the first six months after the issue date.
What is the best bond to buy in 2024?
The top picks for 2024, chosen for their stability, income potential and expert management, include Dodge & Cox Income Fund (DODIX), iShares Core U.S. Aggregate Bond ETF (AGG), Vanguard Total Bond Market ETF (BND), Pimco Long Duration Total Return (PLRIX), and American Funds Bond Fund of America (ABNFX).
Are Treasury bonds a good investment? Generally, yes, but that depends on your investing goals, your risk tolerance and your portfolio's makeup. With investing, in many cases, the higher the risk, the higher the potential return. This applies here.
This points to a potential Fed pivot in late 2023 and heading into 2024. As such, multifamily owners and investors need to continue to watch their debt stack but may look at more short-term lending solutions as rates appear poised for a drop in the coming 12-24 months.
| Stock | Portfolio weight |
|---|---|
| Alphabet Inc. (GOOG, GOOGL) | 2.2% |
| Novo Nordisk A/S (NVO) | 2.1% |
| Liberty Broadband Corp. (LBRDK) | 1.4% |
| CRH PLC (CRH) | 1.3% |
The short answer is bonds tend to be less volatile than stocks and often perform better during recessions than other financial assets.
