Bond Market Outlook: Improving Returns | Morgan Stanley (2024)

Sources:

1 FRED (Federal Reserve Economic Data) U.S. Treasury Securities at 10-Year Constant Maturity, Quoted on an Investment Basis as of 12/29/2023.

2Diversification does not eliminate the risk of loss.

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The market returns referred to in the commentary are those of representative indices. The index performance is provided for illustrative purposes only and is not meant to depict the performance of a specific investment.Past performance is no guarantee of future results.

Bloomberg U.S. Aggregate Indexis an unmanaged index of domestic investment-grade bonds, including corporate, government and mortgage-backed securities. "Bloomberg®" and the Bloomberg Index/Indices used are service marks of Bloomberg Finance L.P. and its affiliates and have been licensed for use for certain purposes by Morgan Stanley Investment Management (MSIM). Bloomberg is not affiliated with MSIM; does not approve, endorse, review or recommend any product; and does not guarantee the timeliness, accuracy or completeness of any data or information relating to any product.

Risk Considerations: Diversification does not eliminate the risk of loss. Fixed income securities are subject to the ability of an issuer to make timely principal and interest payments (credit risk), changes in interest rates (interest-rate risk), the creditworthiness of the issuer and general market liquidity (market risk). In a rising interest-rate environment, bond prices may fall and may result in periods of volatility and increased portfolio redemptions. In a declining interest-rate environment, the portfolio may generate less income. Longer-term securities may be more sensitive to interest rate changes.

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Bond Market Outlook: Improving Returns | Morgan Stanley (2024)

FAQs

What is the outlook for the bond market? ›

Starting yields, potential rate cuts and a return to contrasting performance for stocks and bonds could mean an attractive environment for fixed income in 2024.

What should bond investors do when interest rates rise? ›

Should I only buy bonds when interest rates are high? There are advantages to purchasing bonds after interest rates have risen. Along with generating a larger income stream, such bonds may be subject to less interest rate risk, as there may be a reduced chance of rates moving significantly higher from current levels.

What is the market outlook for 2024? ›

Wall Street analysts' consensus estimates predict 3.6% earnings growth and 3.5% revenue growth for S&P 500 companies in the first quarter. Analysts project full-year S&P 500 earnings growth of 11.0% in 2024, but analysts are more optimistic about some market sectors than others.

Why does stock have more potential for higher returns and bonds? ›

Stocks have historically delivered higher returns than bonds because there is a greater risk that, if the company fails, all of the stockholders' investment will be lost (unlike bondholders who might recoup fully or partially the principal of their lending).

Should I invest in bonds right now? ›

Short-term bond yields are high currently, but with the Federal Reserve poised to cut interest rates investors may want to consider longer-term bonds or bond funds. High-quality bond investments remain attractive.

Is 2024 a good time to buy bonds? ›

Vanguard's active fixed income team believes emerging markets (EM) bonds could outperform much of the rest of the fixed income market in 2024 because of the likelihood of declining global interest rates, the current yield premium over U.S. investment-grade bonds, and a longer duration profile than U.S. high yield.

Will bond funds recover? ›

The table on the right shows that bond prices often recover within 8 to 12 months. Unnerved investors that are selling their bond funds risk missing out when bond returns recover. It is important to acknowledge that some of those strong recoveries were helped by bond yields that were higher than they are today.

Does it make sense to sell bonds before maturity? ›

While you can make money from bonds by simply keeping them until the maturity date, there are also times when selling bonds could make sense. This largely depends on interest rates and the credit risk of the borrower issuing the bond.

Can you lose money on bonds if held to maturity? ›

After bonds are initially issued, their worth will fluctuate like a stock's would. If you're holding the bond to maturity, the fluctuations won't matter—your interest payments and face value won't change.

Will 2024 be a better year to buy? ›

In 2024, homebuyers can expect lower mortgage rates, higher home prices, and a lot more competition. Hopeful buyers should start preparing as early as possible by saving money and paying down debt to improve credit scores. Look into affordable mortgage programs and down payment assistance to boost affordability.

What is the expected return of the stock market in the next 10 years? ›

U.S. stock returns: 2023 optimism carries forward

This heightened optimism is on par with the positive outlook in December 2021, when investors anticipated a 6% stock market return for 2022. Investor expectations for stock returns over the long run (defined as the next 10 years) rose slightly to 7.2%.

What is the stock market prediction for 2025? ›

The S&P 500 still has 30% upside between now and the end of 2025, according to Capital Economics. "Our end-2025 forecast of 6,500 for the index is premised on its valuation reaching a similar level to its peak during the dot com mania," Capital Economics said.

Should you buy bonds when interest rates are high? ›

The answer is both yes and no, depending on why you're investing. Investing in bonds when interest rates have peaked can yield higher returns. However, rising interest rates reward bond investors who reinvest their principal over time. It's hard to time the bond market.

How much of my portfolio should be in bonds? ›

The rule of thumb advisors have traditionally urged investors to use, in terms of the percentage of stocks an investor should have in their portfolio; this equation suggests, for example, that a 30-year-old would hold 70% in stocks and 30% in bonds, while a 60-year-old would have 40% in stocks and 60% in bonds.

Have bonds ever outperformed stocks? ›

Bonds have outperformed stocks and cash 23 times (24% of the time). And cash has outperformed stocks and bonds 14 times (15% of the time). Stocks win most of the time but not always. One of the reasons bonds have had such a rough go at it over the previous 10 years is because yields were so low.

Will the bond market recover in 2024? ›

After all, most of a bond's return over time comes from its yield. And falling yields—which we expect in the latter half of 2024—boost bond prices. Investors should consider extending duration in this environment to gain exposure to rates.

Will bond funds recover in 2024 Vanguard? ›

The big picture: Vanguard's active fixed income team believes EM bonds could outperform much of the rest of the fixed income market in 2024 because of the likelihood of declining global interest rates, the current yield premium over U.S. investment-grade bonds, and a longer duration profile than U.S. high-yield.

Are bonds safe if the market crashes? ›

Do Bonds Lose Money in a Recession? Bonds can perform well in a recession as investors tend to flock to bonds rather than stocks in times of economic downturns. This is because stocks are riskier as they are more volatile when markets are not doing well.

Should I move my 401k to bonds? ›

Moving 401(k) assets into bonds could make sense if you're closer to retirement age or you're generally a more conservative investor overall. However, doing so could potentially cost you growth in your portfolio over time.

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