As 2024 begins, financial experts are getting unusually excited about the most famously "boring" investment: bonds.
"We've never been so optimistic about bonds," said Gene Goldman, chief investment officer at
Callie Cox, a U.S. market analyst at the global investment firm
"I think bonds are in an attractive spot going into 2024," Cox said. "Stocks are quite attractive too … but I think bonds could be the bigger surprise going into 2024."
Some of the biggest firms on Wall Street are betting on bonds as well. Two of JPMorgan's top strategists, Marko Kolanovic and Jason Hunter,
What's behind all this optimism? After all, the bond market just finished a historically terrible year. As the Federal Reserve repeatedly raised interest rates, bond yields — which are inversely related to bond prices — soared higher and higher. In October, the yield on a 10-year Treasury
But analysts see a change coming in 2024. And ironically, they see it coming from the same entity that hiked up interest rates in the first place.
"I guess the optimism is, first of all … the Fed is likely going to cut rates," Goldman said. "Whether you believe the Fed or the markets, rates are coming down in 2024."
On Dec. 13, the Fed announced not only that it was finished raising interest rates for now, but that it will probably lower them three times in the latter half of 2024. Since then, Wall Street insiders — including
Such cuts would be great news for the bond market, because they would push yields lower — and render previously issued bonds, with their higher yields, far more valuable.
"Anything between 4% and 4.2% is a buy" for 10-year Treasuries, Priya Misra, a portfolio manager at JPMorgan Asset Management,
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But since yields are already at historic highs, they're likely to remain relatively robust even after a few cuts from the Fed. That would leave bonds with both high prices and high rates of return, making them a very attractive investment.
"You're getting really, really good yields," Goldman said. "And with inflation moderating, that's only going to get even better."
In recent months, researchers at a number of global firms have made similar predictions. Studies published by
"Our bond return expectations have increased substantially," Vanguard wrote in its report. "By the end of the decade, bond portfolio values are expected to be higher than if rates had not increased in the first place."
LPL's analysis was upbeat as well.
"With a potential directional change in interest rates likely coming in 2024, we believe bonds offer compelling value," the firm wrote.
Experts differ over whether 2024 will bring a recession or a "soft landing" engineered by the Fed. But even if the economy slows, Cox said, she still thinks bonds will serve an important purpose: as a hedge against stocks.
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"We think it's smart to give an eye toward bonds at this moment," she said. "Given how strong stocks have performed this year, it could be time to rebalance your money a little bit — focus on bonds as a good cushion heading into next year."
For his part, Goldman thinks the Fed will be able to pull off the soft landing. That may involve some "turbulence" in the form of volatility, he said. But in the long run, bonds will settle into a safer, more profitable market.
"If you look at 2024, our three themes are: The Fed goes from foe to friend, the economy glides into a soft landing, and market volatility is going to create some huge opportunities for long-term investors," Goldman said. "So we're pretty excited about 2024."
