Fixed Income Market News (2024)

FAQs

Is fixed income a good investment now? ›

Whether fixed income is a good investment now depends on your individual financial situation. That said, yields on fixed-income securities, such as US Treasury bonds, are some of the highest in decades.

Interest rates tend to begin to decline three months ahead of recessions and reach a cycle low about five months into recessions. During economic downturns, fixed income has been shown to provide diversification benefits and reduce the volatility of portfolios that include risk assets such as equities.

Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed-income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors.

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.

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).

If you sell your bonds as soon as someone hints at the word "hike," you may be jumping the gun. When the market consensus is that a rate increase is right around the corner, it's time to sell and reinvest the proceeds in higher-paying bonds. One caveat applies to short-term holdings or those that are near maturity.

1 Year Treasury Rate is at 4.45%, compared to 4.46% the previous market day and 5.35% last year. This is higher than the long term average of 2.96%.

A $1,000 26-week bill sells at auction for a discount rate of 0.145%. The formula shows that the bill sells for $999.27, giving you a discount of $0.73. When you get $1,000 after 26 weeks, you have earned $0.73 in "interest."

Where to put money during a recession. Putting money in savings accounts, money market accounts, and CDs keeps your money safe in an FDIC-insured bank account (or NCUA-insured credit union account). Alternatively, invest in the stock market with a broker.

What happens to bonds if the stock market crashes? ›

Are bonds safe if the market crashes? Even if the stock market crashes, you aren't likely to see your bond investments take large hits. However, businesses that have been hard hit by the crash may have a difficult time repaying their bonds.

Cash Purchases

Cash delivers safety in troubled times. Experts recommend keeping three to six months' worth of cash to cover living expenses when people lose their jobs. For businesses, maintaining liquidity through a recession can making the difference between shutting the doors or surviving the downturn.

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.

Investments that can be appropriate include bank CDs or short-term bond funds. If your investing timeline is longer, and you're willing to take more risk in order to potentially earn higher yields, you might consider longer-term Treasury bonds or investment-grade corporate or municipal bonds.

Bond prices cratered in 2022 after the Fed began drastically raising near-zero rates to tame runaway inflation. As new bonds were issued at higher rates, the value of old ones fell, since they gave holders smaller interest payments and thus lower returns on their investment. That triggered a steep selloff in bonds.

Is now a good time to buy bonds? Many investors have been reluctant to hold bonds for years due to the low interest rate environment, but that should no longer be the case, says Collin Martin, fixed income strategist at Charles Schwab.

Look for rate-sensitive fixed income

While interest rate sensitivity may have pinched fixed income investors in 2021 and 2022 as inflation soared, fixed income is poised to earn healthy total returns this year. In general, prices rise as yields fall in fixed income.

Fixed income should be a part of any diversified portfolio and current yield levels mean that now is a good time to initiate or add to exposure. Opportunities are likely to arise in quality corporate bonds in both the US and Europe. We would take a balanced duration approach and manage duration exposure as yields move.

When interest rates rise, prices of existing bonds tend to fall, even though the coupon rates remain constant, and yields go up. Conversely, when interest rates fall, prices of existing bonds tend to rise, their coupon remains constant – and yields go down.