Bonds Are Roaring Back to Life: Should You Invest Now?

investing.com:

The US bond market has had a rough ride for much of the past two years, but the powerful rally over the last two months suggests the worst is over.

Cherry-picking analytics from the recent crop of 2024 outlooks that are seasonal standards this time of year provides inspiration for thinking that the new year could reverse more (all?) of the damage inflicted on fixed income since the Federal Reserve started raising interest rates in March 2022.

An ETF proxy for the US bond market, Vanguard Total Bond Market (NASDAQ:BND), has rallied sharply, but it’s still far below 2021 levels. The bullish interpretation: there’s still plenty of room to run, assuming macro conditions are supportive.

The critical factor for bond prices in the year ahead, of course, is inflation’s path. Recent history provides support for expecting that pricing pressure will continue to ease and move closer to the Federal Reserve’s 2% target.

The Wall Street Journal reports:

“The Federal Reserve is winning its fight over inflation, boosting Americans’ spirits and offering greater reassurance that the U.S. economy can avoid a recession while bringing prices under control.

The Fed’s preferred inflation measure, the personal-consumption expenditures price index, fell 0.1% in November from the previous month, the first decline since April 2020, the Commerce Department said Friday. Prices were up 2.6% on the year, not far from the Fed’s 2% target.”

Andrew Hunter, deputy chief U.S. economist at Capital Economics, advises:

“Adding in the further sharp slowdown in rent inflation still in the pipeline, it’s hard to see any credible reason why the annual inflation rate won’t also return to the 2% target over the coming months.”

The Federal Reserve appears to be on