Will bond funds recover in 2024? (2024)

Will bond funds recover in 2024?

“Although some volatility may continue, we believe interest rates have peaked,” predicts Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research. “We expect lower Treasury yields and positive returns for investors in 2024.”

Yields to Trend Lower

Key central bank rates and bond yields remain high globally and are likely to remain elevated well into 2024 before retreating. Further, the chance of higher policy rates from here is slim; the potential for rates to decline is much higher.

As for fixed income, we expect a strong bounce-back year to play out over the course of 2024. When bond yields are high, the income earned is often enough to offset most price fluctuations. In fact, for the 10-year Treasury to deliver a negative return in 2024, the yield would have to rise to 5.3 percent.

Bond ETFs can offer several potential advantages for investors in 2024, as many analysts expect the economy to slow or enter a recession, which could lead to price appreciation. Bond ETFs also offer other benefits, such as income generation and diversification.

We think bonds will prove their worth again as a source of income and a diversifier to equities. There should be more opportunities ahead, even if investors need to traverse some moguls in the economy.

Stock Market Forecast 2024: Wall Street Price Targets

Growth is expected to improve in 2024. Analysts are calling for year-over-year earnings growth of 11.5%, Butters says. But not all of Wall Street is convinced.

Including bonds in your investment mix makes sense even when interest rates may be rising. Bonds' interest component, a key aspect of total return, can help cushion price declines resulting from increasing interest rates.

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).

During a bear market environment, bonds are typically viewed as safe investments. That's because when stock prices fall, bond prices tend to rise. When a bear market goes hand in hand with a recession, it's typical to see bond prices increasing and yields falling just before the recession reaches its deepest point.

Is BND good for long term?

Offers relatively high potential for investment income; share value tends to rise and fall modestly. May be more appropriate for medium- or long-term goals where you're looking for a reliable income stream.

BND's 50-day moving average is 72.35, which suggests BND is a Buy.

We expect bond yields to decline in line with falling inflation and slower economic growth, but uncertainty about the Federal Reserve's policy moves will likely be a source of volatility. Nonetheless, we are optimistic that fixed income will deliver positive returns in 2024. For illustrative purposes only.

Long-term interest rates have been declining rapidly over the past two months. The timing is still good for income-seeking investors to buy shares of bond funds and one excellent example is the ICON Flexible Bond Fund, which is managed by Jerry Paul.

According to our forecasts, we continue to think investors will be best served in longer-duration bonds and locking in the currently high interest rates. At the short end of the curve, we expect that the Fed will shift course and begin to ease monetary policy in 2024 by lowering the federal-funds rate.

High-yield or junk bonds typically carry the highest risk among all types of bonds. These bonds are issued by companies or entities with lower credit ratings or creditworthiness, making them more prone to default.

Key Takeaways. Potential economic obstacles in 2024 could delay the start of a sustained bull market, but investors can still find opportunities. Consider staying cautious on U.S. stocks while shifting to bonds for potential income and capital gains.

What is happening in 2024?

August 19–August 22 – The 2024 Democratic National Convention will be held at the United Center in Chicago. November 5 – The 2024 United States presidential election will take place.

Highlights: Nominal median U.S. equity market return of 4.2% to 6.2% during the next decade; 4.8%–5.8% median expected return for U.S. fixed income (as of Sept. 30, 2023). Vanguard's latest U.S. equity market return forecast is a touch below where it was a year ago. (The firm presents its forecasts in a range.)

It's all about the Fed

Because bond prices typically fall when interest rates rise, bond markets have long been sensitive to changes in rates by central banks. But they are also influenced by other factors such as the health of the economy and that of the companies and governments that issue bonds.

Impact of Inflation on Fixed Income Investments

Bond prices are inversely rated to interest rates. Inflation causes interest rates to rise, leading to a decrease in value of existing bonds. During times of high inflation, bonds yielding fixed interest rates tend to be less attractive.