According to Yahoo News, US fixed income is set to achieve its best monthly performance in almost 40 years as markets anticipate a shift in central bank policy. The Bloomberg US Aggregate Bond Index, which tracks total returns, has surged 4.3% so far in November, on pace for the biggest monthly gain since 1985. This jump has also pulled the index, consisting mostly of US Treasury bonds, into positive territory for the year after a steep sell-off.
Just a month prior, both government and corporate fixed-income experienced extensive outflows, with yields on long-dated Treasurys hitting 16-year highs, temporarily breaching 5% levels. However, Treasurys have since erased losses for the year after a historic crash, with the yield on 10-year bonds back under 4.3%. November also saw renewed interest in riskier bonds, with corporate assets achieving their biggest inflows since July 2020, and junk bonds especially benefiting.
Investors' sudden fixed-income appetite comes on the expectation that the Federal Reserve has reached the end of its hiking cycle, with markets even pricing in a possible interest rate cut as soon as March. This bet was first triggered by October's lower-than-anticipated inflation report, but recent commentary from central bank officials has bolstered investors' confidence. However, some caution that markets may be pricing rate cuts too early, as S&P Global Ratings recently noted that the slump in Treasury yields could actually prompt another Fed rate hike next month.
Catherine
