For Bond Investors, Delayed Rate Cuts Demand a Different Playbook [View all]

[bucolic_frolic]

Not a recommendation, but I did notice that this has become a recurring current theme on financial news sites. So trying to understand it, as I've always been lurched by bond recommendations. I don't think I ever made a penny.

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For Bond Investors, Delayed Rate Cuts Demand a Different Playbook

https://www.morningstar.com/markets/bond-investors-delayed-rate-cuts-demand-different-playbook

The market no longer seems primed for a major bond rally the way it did at the end of 2023. But that doesn’t mean there aren’t opportunities in fixed income. Strategists point to the short end of the curve as the most attractive, and they say it’s not too soon to start locking in higher yields, even if rates remain steady for the next few months. Here’s everything investors need to know.
Bond Yields Jump On Sticky Inflation

The yield on the 10-year Treasury note has been steadily climbing since January as markets come to grips with a new reality. Improvement in inflation has stalled, and as a result, interest rates will likely remain higher for longer than previously thought.

The market no longer seems primed for a major bond rally the way it did at the end of 2023. But that doesn’t mean there aren’t opportunities in fixed income. Strategists point to the short end of the curve as the most attractive, and they say it’s not too soon to start locking in higher yields, even if rates remain steady for the next few months. Here’s everything investors need to know.
Bond Yields Jump On Sticky Inflation

The yield on the 10-year Treasury note has been steadily climbing since January as markets come to grips with a new reality. Improvement in inflation has stalled, and as a result, interest rates will likely remain higher for longer than previously thought.
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Bond outlook: Opportunities emerge as Fed delays rate cuts

https://www.capitalgroup.com/advisor/insights/articles/2024-midyear-bond-outlook.html

As the economy has chugged along and demand from investors has remained strong, the spread, or yield differential, between credit assets and U.S. Treasuries has narrowed significantly. As such, the greater return potential for bonds with credit risk comes not from possible spread tightening, but a decline in interest rates.

“Given the recent tightening in corporate bond spreads, we are seeing better opportunities in higher quality sectors with attractive yields such as securitized credit and agency mortgage-backed securities (MBS),” Gonzales says. Higher coupon mortgage bonds are particularly attractive. These bonds are unlikely to get refinanced ahead of their maturity given prevailing mortgage rates of roughly 7%.

Supply dynamics also work in their favor. Namely, home sales have slowed as homeowners decline to sell, clinging to pandemic-era mortgage rates.

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Investors queued up for US high-yield bond funds as rate cut hopes grow

https://www.reuters.com/markets/rates-bonds/investors-queued-up-us-high-yield-bond-funds-rate-cut-hopes-grow-2024-06-06/

"Combined with the attractive outright yields available, compared to 5 and 10-year averages, we are seeing investor confidence that strong corporate profits, together with an easing Fed, should provide an environment for default expectations to decrease," said Chris Romanelli, portfolio manager at Loomis Sayles.
He also added that the expectations for Fed rate cuts have helped to fuel demand for floating rate credit which has increasingly been utilized in high yield bond funds.
S&P Global Ratings expects the U.S. trailing 12-month speculative-grade corporate default rate to fall to 4.5% by March 2025, from 4.9% in April 2024.
Last month, the iShares iBoxx $ High Yield Corporate Bond ETF led the pack with approximately $1.99 billion in inflows. Meanwhile, the iShares Broad USD High Yield Corporate Bond ETF and SPDR Portfolio High Yield Bond ETF garnered $1.09 billion and $537 million in net inflows, respectively.