The bond market’s 2023 fourth-quarter performance proved to be a tough act to follow. The Morningstar US Core Bond Index, a proxy for the US-dollar-denominated investment-grade bond market, soared 6.6% in last year’s final frame, but lost momentum in 2024’s first quarter and fell 0.8%.
Interest-rate volatility persisted as strong economic data and reduced rate-cut expectations lifted yields higher over the quarter. Investors who accepted more duration risk, or sensitivity to shifting yields, felt the most pain. The typical long government Morningstar Category fund, which invests in long-dated Treasury bonds and carries a duration of 16.9 years, plummeted 3.1% during the year’s first three months.
On the other hand, a relatively healthy economy continued to reward those who ventured into credit-sensitive sectors, such as bank loans and high-yield bonds, that tend to be…
