In mid-September, the bond market looked set to coast to a second year of recovery after a bruising run of back-to-back losses in 2021 and 2023. Since then, the market has lost altitude. Although a modest year-to-date gain is holding for the moment, the headwinds may be strengthening for fixed-income securities as the market grapples with a changing outlook for inflation.
As of Friday’s close , most of the primary bond market sectors are posting gains for 2024, based on a set of ETFs. Junk bonds are leading the way with 8%-plus total returns. The investment-grade benchmark , based on analytics of the 32 components of the consumer price index, rebounded sharply during the May-through-August period before pulling back in September.
Deciding what’s in store is especially tricky at the moment because details are still evolving on what could be a radical change in US economic policy starting in 2025 and beyond. As a result, the bond market is demanding a higher risk premium. Theyield has risen 70 basis points to 4.31% through Friday’s close.
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