After fizzling this year, the year of the bond may still come in 2024, according to fixed-income specialists.
The prediction is partially prompted by slowing of inflation and the flattening of the consumer price index and producer price index, they said. The producer price index, in particular, fell by the most in three and a half years in October amid a sharp drop in the cost of gasoline, according to the U.S. Bureau of Labor Statistics.
At the same time, the Consumer Price Index showed prices were flat over last month and rose 3.2% over the prior year in October, which was a deceleration from September’s 0.4% monthly increase and 3.7% year-over-year gains in prices. Economists had expected prices to increase 0.1% month-over-month and 3.3% year-over-year, according to data from Bloomberg.
“After the historic drawdowns we’ve seen in bonds over the past two years, a slowing of inflation gives investors an opportunity to rebuild trust and restore confidence in their bond portfolio,” Dave Grecsek, managing director for investment strategy and research at Aspiriant, an independent employee owned wealth management firm with headquarters in Los Angeles, said in an email.
But it is not only bonds that deserve a new look, Grecsek said. “It is also a good time to revisit longer-term planning assumptions. In a lower inflation world portfolios have more buying power which is a good message to send,” he said.
The more the rate of inflation declines on its own, the less likely the Federal Reserve will be inclined to push the nation into a recession next year, Jack P. McIntyre, portfolio manager for fixed income at Brandywine Global Investment Management, said in an interview.
“Bonds and equities have both seen a rally recently, but 2024 may actually be the year of the bond,” McIntyre said. “Advisors were quick to tell clients to abandon the 60/40 portfolio, in part because bonds were so weak, but that might have been a mistake. At least bonds are selling with a coupon now.”
”The 2017 tax cuts are set to expire in 2025, so that will make the security of bonds even more attractive,” he added.
Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management, added in a blog posting that bonds are making a resurgence, in part because of the slowing of inflation, but investors should keep the focus on quality bond investments.
“With rates expected to be higher for longer, an up-in-quality approach may help investors identify bond issuers well-positioned to withstand higher funding costs, along with a more strategic approach to private credit,” Rosner said. “Yield has returned, but so has dispersion, underscoring the value of active management and astute selection.”