The U.S. bond market bounced back in 2023 after a tough 2022: The Morningstar US Core Bond Index finished the year up 5% after falling nearly 13% in 2022. “Following the worst bond market ever in 2022, fixed-income markets largely normalized and rebounded in 2023,” says Morningstar chief U.S. market strategist Dave Sekera.
What’s next for the bond market?
“We forecast that the Fed will lower the federal-funds rate at its March 2024 meeting and continue to cut rates further to approximately 3.75% by the end of the year,” he notes. “We further project that the Fed will continue cutting rates, dropping to 2.25% by the end of 2025.” Sekera suggests investors favor longer-duration bonds, locking in their higher interest rates.
Regardless of where interest rates and bond yields are headed, there’s a case to be made for holding bond funds in your portfolio. One of the biggest reasons…
