No matter where you look, fixed-income analysts are proclaiming 2023 as the year of the bond. But why will that be the case? According to fund firm Nuveen, “The anticipated rate decline, along with the higher starting yield, creates an attractive outlook for bonds this year.” The firm believes that the high starting yields this year could be setting the stage for a bond market comeback. According to Nuveen’s latest fixed-income report, over the last four and half decades, years that feature higher yields early on often produce higher returns by the end of the year. For example, in 1982, when the starting yield was 14.6 percent, the bond market gained 32.6 percent over the next 12 months. After consecutive rate hikes in 2022, the bond yield in early 2023 is at the highest level since the global financial crisis. The firm also believes that a slowdown in rate hikes could generate higher returns. While the Fed raised rates aggressively last year to curb inflation, it has indicated plans to move more gradually this year with recession fears growing. Since bond prices move inversely with yields, the firm says a drop in yields could create “potential price return opportunities.”

Finsum:Fund firm Nuveen is bullish on bonds this year due to an anticipated rate decline and a high starting yield.