Bonds, what will happen in 2024. Here are 15 bonds with a yield of up to 11% TABLE – MilanoFinanza News

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In 2023, the performance of the global economy and the inflation trend surprised market operators, leading central banks to raise interest rates more than expected. Ahead of the new year, investors are looking for opportunities in the bond market.

What will happen in 2024

Inflation is gradually easing, meaning that interest rates in major economies such as the US, Europe and the UK are likely to have peaked. However, for Craig MacDonald, global head of fixed income at Abrdn, It is necessary for the authorities to reduce interest rates by the second half of next year before we see an acceleration in bond yields. “When we look at the historical relationship between Federal Reserve rate-cutting cycles and bond performance, we can see how post-peak interest rate periods lead to rising returns in many fixed income sectors,” reports Craig MacDonald.

What does a cut in interest rates mean?

According to MacDonald, 2024 will see further declines in inflation, a weakening labor market and a slowdown in the economy, a scenario that results in either a recession or a recession-like environment for many companies and countries. “When central bankers see the economy slowing enough to bring inflation back to target levels, they will prepare to cut interest rates, a move that will support many areas of the bond market,” the expert adds.

What to watch in 2024

Government and investment-grade bonds should be closely watched and will perform particularly well, according to MacDonald. However, watch out for the possibility of an unexpected economic recovery and resumption of inflationand that would force central banks to raise interest rates again, threatening most asset classes except shorter-dated bonds and money market funds. Another problem, the expert explains, is the faster-than-expected depletion of savings, a situation that would affect bonds issued by most companies and banks.

Banks are still strong

The big banks have demonstrated that they have solid balance sheets and good profitability, qualities that would help cushion the effects of a rise in bad loans and tightening credit standards. «Bond yield spreads are still quite generous and offer selective opportunities”, says MacDonald. In this context, risks remain limited to small and regional banking institutions, which are more exposed to borrowers in the real estate sector, considering that more than $2 trillion in real estate debt is due to be refinanced in the next two years, much more . of which on the balance sheets of US regional banks.

Investment grade bonds and high quality private loans

High profit margins and conservative balance sheets in investment-grade corporate bonds led to more upgrades than downgrades, while there are few opportunities in high-quality private credit. However, MacDonald warns against an increase in bond defaults in the riskiest small caps, especially in the event of a slowdown in the economy. Meanwhile, leveraged loans and private loans have seen rapid growth, which could weaken credit standards.

Emerging markets

Emerging markets definitely have cheap and likely valuations many countries among these markets will be among the first to cut interest rates, thereby supporting local currency debt. However, Abrdn’s global head of fixed income advises to be wary of valuations of investment-grade securities, which are at the limit: “we should therefore see a weakening of the US dollar and a decline in US government bond yields before investors return. into that market en masse,” MacDonald explains, adding that the outlook appears less favorable if the dollar strengthens significantly or a recession will occur.

15 bonds with a yield of up to 11%

Below is a table compiled by Milano Finanza analysts showing 15 bonds based on investment strategies with returns of up to 11%.

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