Bond Market Update: Now’s the Time to Consider Fixed Income

November 17, 2023

Download the 11.17.23 Dynamic Bond Market Update for advisors’ use with clients

Yields Retreat but Remain Attractive

Fixed income volatility continued into November, driven by expectations that this tightening cycle may finally be coming to an end. Since our last Bond Market Update on October 20, 30-year Treasury yields decreased 37 basis points from 5.07% to 4.70%, and 10-year Treasury yields declined from 4.91% to 4.55% as of November 15.

Even with this pullback in yields, attractive income opportunities are still widely available across fixed income sectors and maturities. While volatility may remain high for the remainder of the year, we believe now is an exceptional time to look at fixed income. The following chart, “Yield to Worst,” provides a broad level overview of the current fixed income yield environment.

Source: ICE BofA Indexes, Bloomberg. Past performance is no guarantee of future results.

Potential Easing Around the Corner

According to Bloomberg’s current interest rate probability model (as of November 16), expectations for an additional rate hike this cycle have dropped to zero. Furthermore, the prospect for significant rate cuts in 2024 has increased. The model now estimates a 100% chance of at least one 25 basis point cut by June of next year, and a 100% chance of at least three by November. Should this scenario play out, the opportunity to lock in yields at these levels could be closing.

Falling Rates Could Bolster Total Returns

If interest rates decline, the potential for price appreciation in the bond market is robust. In general, bond prices move inversely with yields, meaning prices go up as rates decline and fall when rates rise. Intermediate and long bonds are more sensitive to this relationship, and often outperform shorter maturities when rates are falling.

The three charts below present the total returns for select bond indexes at the beginning of the last three Federal Reserve (Fed) easing cycles. For this analysis, we excluded the COVID-19 interest rate cuts in March 2020, as we believe this period is an outlier when compared to historical easing campaigns.

Source: ICE BofA Indexes, Bloomberg. Past performance is no guarantee of future results.

Source: ICE BofA Indexes, Bloomberg. Past performance is no guarantee of future results.

Source: ICE BofA Indexes, Bloomberg. Past performance is no guarantee of future results.

While the charts above illustrate the general tendency for intermediate and long maturities to outperform short during easing cycles, they also show this outperformance varies across fixed income sectors and economic environments. Since no two easing cycles are the same, and timing rate cuts can be difficult, we continue to recommend a diversified approach to maturity and sector selection. With attractive yields still broadly available, and market expectations for future rate cuts increasing, now is a compelling time to consider fixed income.

A prudent approach to fixed income investing calls for diversification across both credit and duration exposure. As always, Dynamic recommends staying balanced, diversified and invested. Despite short-term market pullbacks, it’s more important than ever to focus on the long-term, improving the chances for investors to reach their goals.

Should you need help navigating fixed income for your clients, please contact Dynamic’s Investment Management team at (877) 257-3840, ext. 4 or

Bill Smith serves as president, Portfolio Management & Trading, of Harmont Fixed Income in Phoenix.


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