Bonds are a type of investment that people can buy. Late last year, experts anticipated that bonds would become more attractive because they expected the US government to cut interest rates in early 2024. When interest rates go down, bond prices tend to go up. However, experts revised their views when the US inflation rate stayed stubborn in January 2024. This made people think that the US government might not cut interest rates as soon as they thought.
During its first meeting in January 2024, the Federal Reserve chose to keep the benchmark federal funds rate unchanged at 5.50%, continuing the streak of consecutive meetings without a rate adjustment. This has caused market sentiments to reduce their expectations for rate cuts, resulting in a nearly flat performance of bonds recently.
We asked some of the best fund managers what they think about the bond investment and interest rates in 2024. They all agree that interest rates will go down this year. This is good news for people who invest in bonds because it makes them more valuable.
The Experts’ Opinion:
We reached out to some of our partners for their insights on bonds and interest rates. Canaccord Genuity Wealth Management, Momentum Global Investment Management, and Evelyn Partners all agree that there will be interest rate cuts this year.
Canaccord mentioned that while inflation is generally moving in the right direction, progress won’t always be linear, and there may be months when inflation increases. It's important to acknowledge the progress made in combating inflation, which is now declining from its peak in 2022. Momentum reiterated that the Fed has room to cut rates and aims for around three cuts this year, aligning with current market expectations.
That's why they all agree that bonds are attractive and worth investing in this year. Evelyn Partners noted that we've reached the end of the interest rate hiking cycle, making fixed income more attractive. Canaccord favors lower-risk (investment-grade) bonds because the yield they offer adequately compensates for the risks involved.
What does this mean to you?
In recent months, we at Astra strategically positioned our clients’ portfolios to seize opportunities in bonds. We primarily recommended lower-risk bonds such as investment-grade corporate bonds and government bonds. Additionally, the active multi-asset funds we use have adjusted some exposure to favor bonds. The perspectives of our fund managers align with our actions for the benefit of our clients. Our clients are well-positioned to benefit from bond opportunities, offering stability, dividends, and expected capital appreciation. It also adds to the confidence that the fund managers anticipate the US Fed to cut interest rates this year.
What should you do while waiting for rates to go down?
While awaiting interest rate cuts, investors like you can adopt several prudent strategies to navigate this environment:
Invest in Money Market Funds: With interest rates still comparatively high, allocating funds to money market investments can provide stability and liquidity while preserving capital. You can check our article about money market funds here.
Gradually Increase Exposure to Bonds: As interest rates decline, bond prices typically rise, offering investors the chance to capture potential capital gains. Gradually increasing exposure to bonds can position portfolios favorably when interest rates begin to decline.
Seek Professional Guidance: During times of market volatility and uncertainty, seeking guidance from a financial advisor or investment expert can be invaluable. Experienced advisors at Astra can offer personalized insights, customized strategies, and reassurance amid shifting market conditions.
As anticipation builds regarding the timing of interest rate cuts in 2024, we advise you to remain vigilant, adaptable, and well-informed. Astra is here to assist you in navigating the intricacies of the financial market and positioning you for long-term financial success.