Confidence in bond markets is fueling a two-month price rally as capital markets prepare for rate cuts in 2024. Whether they will happen at a breakneck pace is anyone’s guess, but the expectation of cuts provides enough sparks for the recovery. .
“A huge rise in bond prices over the past two months, fueled by expectations that central banks will soon cut interest rates, has saved bond markets from a third straight year of almost unheard-of declines,” Reuters reported .
The report also notes that the decline in the yield on the 10-year Treasury note is evidence of rising bond prices over the past two months. November and December saw the 10-year yield fall by almost 100 basis points, as the Fed’s recent rate pauses gave bullish bond investors optimism that rate cuts will take place in 2024.
The default strategy in recent years, in a context of rising interest rates, has consisted of minimizing interest rate risk and favoring short-term bonds. Today, with the return of confidence in the bond markets, more investors could turn to the long term to seek more yield. That said, Vanguard has a few options to consider.
To stay within safe debt limits via Treasuries, bond investors may consider (VGLT ). The fund tracks the performance of a market-weighted Treasury index with a long-term dollar-weighted average maturity. It uses an index investing approach designed to track the performance of the Bloomberg US Long Treasury Bond Index. This index includes fixed income securities issued by the U.S. Treasury (excluding inflation-protected bonds) with maturities greater than 10 years.
For more yield, albeit higher credit risk, investors can opt for corporate bonds through the (VCLT ). THE ETFs tracks the performance of the Bloomberg US 10+ Year Corporate Bond Index. This index includes investment grade, fixed-rate, taxable, U.S. dollar-denominated securities issued by industrial, utility and financial companies with maturities greater than 10 years.
For a comprehensive option that diversifies bond exposure with a mix of government and corporate debt, investors may consider the (BLV ). It seeks to track the performance of the Bloomberg US Long Government/Credit Float Adjusted Index, which includes all medium and large issuances of US government, investment grade corporate and investment grade international bonds denominated in dollars with maturities greater than 10 years. and are published publicly.
For more news, information and analysis, visit the Fixed Income Channel.