The prevailing consensus in 2024 is that the Federal Reserve will cut interest rates. But predicting central bank moves is an inexact science. That said, fixed income investors could use the help of an active strategy to continue extracting higher yields.
Many of the macroeconomic factors present in 2023 should make a reappearance in 2024. This should drench the markets with buckets of volatility. And that could put fixed income investors in a state of anxiety.
“The interest rate hikes, persistent inflation, recession fears and market shocks such as the regional banking crisis in the U.S. were among factors that shaped bond markets in 2023, and several of them will likely also have a significant effect in the year ahead,” reported CNBC.
One potential saving grace for fixed income investors is that yields could still be relatively high even after the Fed pivots from its monetary policy tightening. Counterbalancing that, however, is whether the high-rate environment could potentially spin the economy into a recession. This is another recurring theme present on the wall of worry from 2023.
“Even after these initial rate cuts, interest rates will remain higher, which has caused concerns about how this will affect the economy and whether the U.S. will dip into a recession this year,” the report added.
That said, fixed income investors will want to stay pliable in a changing market. This is where active management and income diversification can be beneficial.