Looking back at our outlook last year, our bond forecast for 2023 has been confirmed. With inflation rates falling and interest rates rising, a certain balance was achieved on the bond market over the course of the year.
As a result, after years of extremely low interest rates, the investment universe is now complete again thanks to the renewed attractiveness of bonds as an asset class – and is likely to remain so for the foreseeable future in our opinion.
The development of real interest rates, i.e. adjusted for inflation, gives potential fixed income investors grounds for satisfaction. They are now in the positive territory – in some cases significantly so – in all major bond market segments.
This means that investors do not necessarily have to hope for price gains by their securities due to interest rates possibly falling again soon. In our opinion, real interest income alone is currently reason enough to invest, although we expect interest rates to fall slightly in 2024 and, as a result, also expect moderate upside potential for prices.
- Bonds now a fully fledged part of the investment universe after many years of low yields.
- Investment grade has it all: Interesting real yields and low default rates.
- Corporate bonds more appealing than government bonds due to yield pick-up and sound fundamentals .
In 2024, we expect mid- to high-single-digit percentage value growth on most of the world’s bond markets. Corporate bonds are likely to be more interesting than government bonds due to their yield pick-up and sound fundamentals. Investment grade (IG) has it all, offering interesting real yields and low default rates.
By contrast, high-yield (HY) bonds usually harbour high risks due to their lower credit rating in an environment of weaker economic data and rising insolvency rates and are likely to be considered by many investors as a niche investmentonly. As far as maturities are concerned, we consider a mix of short-term (1 to 2 years) and longer-term (up to 10 years) securities to be advisable – with an average of around 4 to 5 years.
From a regional perspective, U.S. bonds offer a clear yield advantage over the European market for example, offering investors from other currency areas a good opportunity to increase the U.S. dollar exposure of their portfolios if necessary.
However, we expect the U.S. dollar to weaken somewhat in the months ahead. Currency losses, for example for investors from the Eurozone, could then only be avoided by hedging accordingly, the costs of which would probably exceed the potential yield advantage. Therefore, EUR IG corporate bonds are our preference for Eurozone investors in 2024. Like their U.S. counterparts, they retain good fundamentals and, thanks to higher yields, could benefit from a possible return of capital flows from alternative forms of investment such as real estate.
When it comes to Eurozone government bonds, Italy could be of interest. The interest rate difference (spread) to German government bonds (Bunds) is currently around 200 basis points for ten-year securities and could widen slightly in the months ahead. The reason for this premium is political uncertainty in Italy coupled with debate about the country’s budget and national debt.
Although we expect some difficult phases, we do not anticipate sustained upheaval in Italy. On the one hand, most Italian government bonds (BBB rating) are held in the country itself; on the other hand, European programmes such as NextGenerationEU or European Central Bank instruments (TPI, PEPP) should provide some reassurance for marketparticipants. By contrast, Bunds offer much greater security with their AAA rating. However, their yield is particularly low due to their virtually unique position as a safe haven in the Eurozone.
The corporate bond markets in the emerging economies are likely to remain largely dependent on China. The economic superpower’s moderate growth and low inflation rates should ensure relative calm in this area. In the HY segment, however, the high proportion of Chinese property developers and banks could prove to be a disruptive factor.
EUR IG corporate bonds are our preference for 2024 because they have good fundamentals and could benefit from a return of capital flows from alternative forms of investment.
FAQs
In 2024, we expect mid- to high-single-digit percentage value growth on most of the world's bond markets. Corporate bonds are likely to be more interesting than government bonds due to their yield pick-up and sound fundamentals. Investment grade (IG) has it all, offering interesting real yields and low default rates.
What is the bond outlook for 2024? ›
Investment-grade corporate bonds remain attractive given their lower risk and relatively high yields. Long-term investors who can handle volatility might consider high-yield bonds and preferred securities, but we wouldn't suggest large positions in either.
What is the investment grade outlook for 2024? ›
Summary. In 2024, the US Investment Grade Credit team estimates the asset class may generate total return between 4%–5%, reflective of current yield levels and limited potential for any further spread tightening given current valuations.
Should I buy bonds when interest rates are high? ›
Should I only buy bonds when interest rates are high? There are advantages to purchasing bonds after interest rates have risen. Along with generating a larger income stream, such bonds may be subject to less interest rate risk, as there may be a reduced chance of rates moving significantly higher from current levels.
Is now a good time to buy bond funds? ›
Answer: Now may be the perfect time to invest in bonds. Yields are at levels you could only dream of 15 years ago, so you'd be locking in substantial, regular income. And, of course, bonds act as a diversifier to your stock portfolio.
Will I bond rates go up in 2024? ›
May 1, 2024. Series EE savings bonds issued May 2024 through October 2024 will earn an annual fixed rate of 2.70% and Series I savings bonds will earn a composite rate of 4.28%, a portion of which is indexed to inflation every six months. The EE bond fixed rate applies to a bond's 20-year original maturity.
Should I invest in stocks or bonds in 2024? ›
Long-term bonds have an average maturity of 10 years or longer, making them a better choice when interest rates are falling, as they're expected to do in 2024.
What is the rate outlook for 2024? ›
The Federal Reserve announced at its June 2024 Federal Open Market Committee (FOMC) meeting that it would maintain the overnight federal funds rate at the current range of 5.25% to 5.5%.
What are the financial predictions for 2024? ›
Outlook for 2024–2034
The growth of real GDP slows to a rate of 1. 5% in 2024 as inflation continues to decline and the federal funds rate falls. After 2024, real GDP grows at a moderate pace.
What is the expected return for investments in 2024? ›
Analysts project 11.5% earnings growth and 5.5% revenue growth for S&P 500 companies in 2024. Fortunately, analysts see positive earnings and revenue growth for all eleven market sectors this year.
If you're holding the bond to maturity, the fluctuations won't matter—your interest payments and face value won't change.
How much is a $100 savings bond worth after 30 years? ›
How to get the most value from your savings bonds
| 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 |
May 7, 2024
Right now, the 3-month Treasury bill rate is 5.25% while the 30-year Treasury rate is 4.58%. So, if you're looking for a risk-free way to earn interest on your cash over a short period of time, investing in a T-bill could be a good choice.
What is the best treasury bond to buy right now? ›
**Average yield to option expiration.
- Vanguard Intermediate-Term Treasury ETF (VGIT)
- Vanguard Short-Term Treasury ETF (VGSH)
- Vanguard Long-Term Treasury ETF (VGLT)
- iShares U.S. Treasury Bond ETF (GOVT)
- Global X 1-3 Month T-Bill ETF (CLIP)
- Amplify Samsung SOFR ETF (SOF)
- Alpha Architect 1-3 Month Box ETF (BOXX)
Remember, when you cash out your I Bonds you don't earn the interest until you complete the month and that you lose the prior 3 months' interest. If you want to keep all your good interest and get the most out of your I Bonds you should cash out: after earning 3 months of lower interest and.
When should I move my money to bonds? ›
During a bear market environment, bonds are typically viewed as safe investments. That's because when stock prices fall, bond prices tend to rise. When a bear market goes hand in hand with a recession, it's typical to see bond prices increasing and yields falling just before the recession reaches its deepest point.
Can 2024 be the year of the bond? ›
After the record pace of interest rate increases, central banks could finally be in a position to offer monetary policy relief, which could lead to a decline in interest rates in 2024. As bond prices generally increase with declining interest rates, this could position bonds for another strong year.
What is the bond forecast for the next 5 years? ›
Vanguard's forecasts show there's a 50% chance that U.S. aggregate bonds will return about as much over the next five years as U.S. equities— 4.3% for bonds versus 4.5% for stocks—with one-third of the median volatility.
What is the global bond outlook for 2024? ›
We expect nominal and real yields to fall over 2024, as central banks cut policy rates as inflation falls and/or if downside growth risks rise. US and selective other advanced economy government bond markets currently offer an attractive payoff and distribution of returns.
Will bond ETFs go up in 2024? ›
Price Appreciation Potential and Recession Hedge
If interest rates decline in 2024, the market value of bond ETFs will likely increase, as prices move in the opposite direction of rates.
