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Buying Opportunities in Bond Market


Bonds have been rallying in anticipation of the Federal Reserve’s pivot to rate cuts this year. Despite today’s higher yields, there are still ample opportunities for investors, according to Nuveen’s Chief Investment Officer (CIO), Saira Malik.

Market Volatility and Investor Behavior

Over the past two years, the repricing of bonds has spooked many investors, leading them to sell their bond positions and move their funds into cash and cash equivalents. As a result, assets in money-market funds have surged to approximately $5.96 trillion in the past year. Although there has been a slight decrease of $1.4 billion in the past week, these figures indicate a substantial shift towards safety.

The Potential for Stock Market Migration

While there is ongoing debate about whether the cash on the sidelines will eventually flow into the stock market, Nuveen’s CIO believes that investors should now consider adding duration in fixed-income portfolios.

Attractive Yields in Different Bond Categories

Currently, U.S. investment-grade corporate bonds offer yields of approximately 5%, “junk bonds” (high-yield) provide around 7.6%, and leveraged loans yield approximately 9%. Although these levels have decreased from the peak in October when the 10-year Treasury yield shot up to 5%, they still present attractive investment opportunities.

Long-Term Outlook on Treasury Yields

The 10-year U.S. Treasury yield is expected to fall from its current levels and reach around 3.50% by the end of 2024, according to Nuveen’s outlook. Taking this into account, extending duration in fixed-income portfolios could be a prudent move for investors.

In conclusion, despite recent bond market volatility, there are still potential buying opportunities available, especially in the fixed-income space. With expectations of falling Treasury yields, investors may find it advantageous to consider adding duration in their portfolios.

Malik Expects Fed to Wait Until Second Half of 2024 for First Rate Cut

According to the CME FedWatch tool, even though traders in fed-funds futures have the odds of a 25 basis-point cut in March at about 45.8%, Malik expects the Federal Reserve to hold off on its first rate cut until the second half of 2024.

Impact on Money-Market Funds

As rate cuts begin, it is expected that yields on money-market funds, which have been around 5%, will quickly retreat. This can make cash and cash-like investments less appealing to hold.

Investing in Corporate Bonds

For investors looking for exposure to a broad basket of corporate bonds, exchange-traded funds (ETFs) are often the go-to option. The popular Shares iBoxx $ Investment Grade Corporate Bond ETF (LQD) and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) have both seen positive performance in the past three months. According to FactSet data, LQD was up 9.8% and HYG was up 7.2% during this period.

Bonds Market Outlook

Although the bond market is performing well, Malik suggests that it may not be a “buy everything” market. He points to a slowing U.S. economy and cracks appearing in consumer resilience as reasons for investors to remain nimble and flexible.

Market Movement and Upcoming Events

On Monday afternoon, stocks (SPX DJIA) were higher, with a busy week ahead for corporate earnings. Other key events to watch include the Federal Reserve’s decision on interest rates, which is due on Wednesday afternoon, and the release of the monthly jobs report on Friday.

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