Sticky inflation and the Federal Reserve keeping interest rates high may have dimmed the outlook for bond investors, but with a slight change in approach, there are attractive opportunities.
Heading into 2024, bond investors were sitting pretty. Yields were near their highest levels in decades, offering attractive income. Meanwhile, the potential for a slowing economy and expectations for upwards of five interest rate cuts by the Fed offered potential profit from rising bond prices. Many experts advocated moving into longer-term bonds to benefit from both trends.
However, continued strength in the economy and stubborn inflation have thrown a wrench in that plan. Bond yields have jumped, meaning prices have fallen, and the Fed has signaled that rate cuts won’t happen until there is greater confidence inflation will resume its decline.
The market no longer seems primed for a major bond rally the way it did at the end of 2023. But that…
