Spare a moment for bonds – not because they’ve been sputtering in recent months, but because they’re looking like an increasingly attractive alternative to stocks and cash as the year winds down.Declining inflation and slow economic activity were going to reward bond investors in 2024 as central banks slashed their key interest rates from multiyear highs, according to many observers at the start of the year.
The yield on the 10-year U.S. Treasury bond, which reflects investors’ opinions of where interest rates and inflation are heading, approached 4.6 per cent on Thursday. The yield, which rises as bond prices fall, is not far from its 2024 high of 4.7 per cent, in April, months before the Fed began to lower rates.
Despite this, they also look like a natural counterweight to stock market volatility amid concern that equity valuations are at nosebleed levels. The Fed’s suggestion on Wednesday thatmay be slower to come next year, amid simmering inflation and the threat of trade tariffs, only adds to the appeal of bonds as a safer alternative to stocks.
Bonds are especially appealing right now for a number of reasons, as noted this week by two voices from asset-manager PIMCO, Richard Clarida, global economic adviser, and Mohit Mittal, chief investment officer of core strategies.