After a catastrophic year, bonds in 2023 are looking promising again for investors as U.S. inflation recedes.
After a catastrophic year, bonds in 2023 are showing signs of promise, with investors eyeing higher yields and falling U.S. inflation as potential reasons to explore their options in the $53 trillion debt market.
The classic “60/40” portfolio, dedicated mostly to stocks plus a smaller share to bonds, failed to soften the blow for investors when equities and debt both plunged in value, because when interest rates rise, bond prices fall. How bonds work Like a loan, bonds are a contractual obligation to pay back debt over time. The terms spell out how much is due each year in principal and interest, until the bond matures.
“When looking at long-term returns, the biggest predictor in bonds is the starting yield,” Mardarovici said. The Fed’s rapid pace of rate hikes since March last year now point to headway in its fight to pull inflation lower. The U.S. consumer-price index rose at an annual rate of 6.5% in December, down from a peak of 9.1% in June, but still was far above the Fed’s 2% target.
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