BSJT - A Case For Getting Off The Sidelines And Into Bond ETFs
2024-04-29 10:00:00 ET
Summary
- Interest rates are now at their highest levels since the early 2000s, helping to make bonds more attractive to investors who had been sitting on the sidelines the past couple of years as bonds endured significant volatility.
- Even with ongoing volatility in economic data and bond markets, we believe that investors may still want to consider moving back into fixed income.
- We continue to believe central banks will ultimately shift their posture and markets will return to an era of less restrictive monetary policy.
By Stephen Laipply, Brett Pybus, Darren Wills, Hui Sien Koay, Vasiliki Pachatouridi, & Karen Veraa
Introduction
Interest rates are now at their highest levels since the early 2000s, helping to make bonds more attractive to investors who had been sitting on the sidelines the past couple of years as bonds endured significant volatility.1 In 2023, global bond ETF inflows rose 25%, hitting a record $333 billion.2 In the fourth quarter alone, global inflows were up 42% over the third quarter.3
Even with ongoing volatility in economic data and bond markets, we believe that investors may still want to consider moving back into fixed income. Why? The signs of market change may be coming into focus: despite the uneven and halting descent in inflation around the world, global central banks may still be nearing the end of a tightening cycle designed to quell the most significant surge in inflation in decades — a cycle that made cash attractive.4 A pivot to rate cuts from central banks later in 2024 — and already underway in emerging economies such as Brazil — is still being debated, but current yield levels may portend an opportunity in fixed income.5
We continue to believe central banks will ultimately shift their posture and markets will return to an era of less restrictive monetary policy. In our view, policy tightening is still not a question of “if” but “when,” and investors, accordingly, may want to consider moving back to fixed income. History tells us that investors can miss out on locking in higher yields if they wait for a clear, definitive answer on rate cuts.6 Instead of trying to time the markets (which is near impossible), investors may consider beginning to move ahead of announced changes in central bank policy rates, and increasing fixed income exposure by putting cash to work with bonds....
A Case For Getting Off The Sidelines And Into Bond ETFs