Should I buy bonds in 2024?
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.
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.
Growth stocks may see a robust 2024 on the strength of trends such as AI disruption and decarbonization. Small-cap stocks are trading at attractive valuations as analysts see the possibility of a rebound in 2024. The time could be right for locking in rates on long-term, high-yield bonds.
Nuveen, a TIAA company, maintains yields for municipals remain attractive despite a strong rally in November 2023. The company believes demand for municipal bonds could increase in 2024 as investors gain conviction that the Fed has ended its rate hikes. Nuveen expects the Fed to cut rates by 150 basis points in 2024.
| Fund (ticker) | Expense Ratio |
|---|---|
| Fidelity Floating Rate High Income Fund (FFRHX) | 0.68% |
| Fidelity Capital & Income Fund (fa*gIX) | 0.93% |
| American Funds Emerging Markets Bond Fund Class F-1 (EBNEX) | 0.95% |
| T. Rowe Price Credit Opportunities Fund (PRCPX) | 0.81% |
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.
| From and Including | Up To But Not Including | Rate |
|---|---|---|
| 1 year - 10 months | 2 years - 2 months | 5% |
| 2 years - 2 months | 2 years - 6 months | 4-7/8% |
| 2 years - 6 months | 3 years - 0 months | 4-3/4% |
| 3 years - 0 months | 3 years - 8 months | 4-5/8% |
- Pay Off Debt.
- Open a High-Yield Savings Account.
- Put Money into a Retirement Account.
- Invest in Real Estate.
- Invest with a Robo-Advisor.
- Fund a Brokerage Account.
- Cryptocurrencies.
- Invest in ETFs.
Good Omens for the S&P 500
The S&P 500's current rally bodes well for the month of February and for the rest of 2024. “The S&P 500 has set six new all-time highs in 2024, all in January. That works out to an annualized rate of 72 new highs,” says Sam Stovall, Chief Investment Strategist of CFRA Research.
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What is the outlook for the municipal bond market in 2024?
We expect supply to pick up somewhat in 2024, though it likely will remain below average given the higher level of rates and significant reserves of municipal issuers. We believe the fundamental backdrop of the municipal market will remain resilient.
Absolute rates are high now, but we expect them to move lower in 2024. There are two main reasons why we believe munis are an area of potential opportunity in 2024: high yields and strong credit quality. To illustrate, the yield-to-worst for the Bloomberg Municipal Bond Index, a broad based index, is 3.7%.
Once a Series I bond is five years old, there is no interest penalty for redemption. Question: Can you determine what the value of a Series I bond will be in future years? inflation rate can vary. You can count on a Series I bond to hold its value; that is, the bond's redemption value will not decline.
| Ticker | Fund name | Five-year return |
|---|---|---|
| CWB | SPDR Bloomberg Convertible Securities ETF | 9.88% |
| FALN | iShares Fallen Angels USD Bond ETF | 6.00% |
| ANGL | VanEck Fallen Angel High Yield Bond ETF | 5.68% |
| HYDB | iShares High Yield Systematic Bond ETF | 5.28% |
| ETF | Expense Ratio | Yield to maturity |
|---|---|---|
| U.S. Treasury 10 Year Note ETF (UTEN) | 0.15% | 3.8%* |
| iShares iBonds Dec 2033 Term Treasury ETF (IBTO) | 0.07% | 4.1% |
| Global X 1-3 Month T-Bill ETF (CLIP) | 0.07% | 5.5% |
| iShares 20+ Year Treasury Bond ETF (TLT) | 0.15% | 4.4% |
- iShares BB Rated Corporate Bond ETF.
- iShares Broad USD High Yield Corp Bd ETF.
- SPDR® Portfolio High Yield Bond ETF.
- iShares ESG Advanced Hi Yld Corp Bd ETF.
- Xtrackers USD High Yield Corp Bd ETF.
- JPMorgan BetaBuilders $ HY Corp Bnd ETF.
- BNY Mellon High Yield Beta ETF.
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.
| Face Value | Purchase Amount | 30-Year Value (Purchased May 1990) |
|---|---|---|
| $50 Bond | $100 | $207.36 |
| $100 Bond | $200 | $414.72 |
| $500 Bond | $400 | $1,036.80 |
| $1,000 Bond | $800 | $2,073.60 |
If sold prior to maturity, market price may be higher or lower than what you paid for the bond, leading to a capital gain or loss. If bought and held to maturity investor is not affected by market risk.
To combat ongoing inflation, it raised the federal funds rate 11 times between March 2022 and July 2023. After its December 2023 session, the Fed forecasted it would make three quarter-point cuts by the end of 2024 to lower the benchmark rate to 4.6%.
Will interest rates 2024 be low?
Inflation and Fed hikes have pushed mortgage rates up to a 20-year high. 30-year mortgage rates are currently expected to fall to somewhere between 5.8% and 6.1% in 2024. Instead of waiting for rates to drop, homebuyers should consider buying now and refinancing later to avoid increased competition next year.
Rates in 2024 are expected to “moderate toward a more normal level,” with 30-year fixed averages dropping below 6% by the end of the year, according to a revised outlook published by Fannie Mae's Economic & Strategic Research group on Thursday.
| Discount Rate | Present Value | Future Value |
|---|---|---|
| 4% | $1,000 | $2,191.12 |
| 5% | $1,000 | $2,653.30 |
| 6% | $1,000 | $3,207.14 |
| 7% | $1,000 | $3,869.68 |
The table below shows the present value (PV) of $3,000 in 20 years for interest rates from 2% to 30%. As you will see, the future value of $3,000 over 20 years can range from $4,457.84 to $570,148.91.
The best way to grow your money over time is to invest it in assets that have the potential to appreciate in value. This could include stocks, bonds, real estate, or other investments. Start small and reinvest your earnings. You don't need to invest a lot of money to get started.
