In 2024, the major market narrative has certainly shifted from whether the Fed will cut or hike to when and how much the Fed will cut. According to Steve Laipply, BlackRock’s Global Co-Head of Bond ETFs, it’s a good time to lock in yields. Currently, investors can achieve yields of 4% in low-risk, diversified bond funds which is quite attractive relative to recent history.
During the previous cycle, investors would have to buy riskier high-yield bonds to achieve such income. Overall, he believes that investors have been overly risk averse during this tightening cycle, and most are underexposed to the asset class. Despite the recent rally, there are plenty of opportunities to capture generous yields with lower levels of risk. Further, fixed income would benefit if the economy weakened further, and inflation continues to lose steam.
While investors can get even higher yields in the front-end of the curve or with certificates of deposit, Laipply doesn’t see this as a prudent approach given underlying macroeconomic trends, and the Fed’s dovish tilt in the new year. He recommends that investors choose a diversified, broad bond fund like the iShares Core US Aggregate Bond ETF or an active fund like the Blackrock Flexible Income Fund.
Finsum: According to Steve Laipply, Blackrock’s Global Co-head of Bond ETFs, investors should lock in yields given the rising chance of a recession, slowing inflation, and a dovish Fed in 2024.