Quick shot: Bond brief: The case for core bonds

If you're already invested in core bonds and feel frustrated – or confused – by recent returns, it's understandable as bond yields have not followed the historical pattern of falling as the Fed cuts interest rates. Since the Fed’s first rate cut in September 2024, 10-year Treasury yields have actually risen by more than 70 basis points (from 3.7% to 4.43%). Knowing that bond prices fall when yields rise, this dynamic has recently dragged on reported core bond total returns.

We said it a year ago, and we'll say it again: Current market conditions suggest opportunities to be found in the fixed income landscape right now. Starting yields on investment-grade bonds are well above the average seen in the past 10 years, and historically this starting point has been indicative of potential annualized return over the subsequent five year periods.

It’s important to remember that bonds are called “fixed income” assets for a reason. So long as the issuer doesn't default, coupon payments received from a bond typically offer a dependable and predictable return stream until the bond reaches maturity. At that point, the investor also receives the par value of the bond back, regardless of potential price fluctuations along the way.

For many investors, the relative predictability of a strategy that involves buying and holding bonds to maturity is what can make the asset class attractive. There can be volatility along the way, but the defining characteristics of bonds may support the case for staying invested in them.

All market and economic data as of 02/24/25 are sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.

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