After the recent lowering of interest rates, bond prices didn’t rise as many had expected. Instead, they dipped further, though they didn’t fall below previous lows. Since then, bond prices have remained relatively stable, neither surging nor collapsing. However, the appointment of Scott Bessent to the Treasury has brought new optimism to the market. Bond prices have started to respond positively, and will this marks the start of a recovery.
During Donald Trump’s presidency (2017–2021), he often called for the Federal Reserve to lower interest rates, believing it would fuel economic growth, boost markets, and enhance the U.S.'s global competitiveness. At the time, his stance clashed with the Fed, which was raising rates to control inflation and ensure long-term stability.
Now, with the Federal Reserve signaling the peak of rate hikes and began to lower rates, the direction aligns with what Trump advocated during his term. This is welcome news for bond investors.
Bond prices and interest rates have an inverse relationship. When rates rise, existing bonds with lower yields lose value because newer bonds offer higher returns. Conversely, when rates fall, bond prices recover as their yields become more attractive compared to newly issued debt. With rates trending down, bonds are becoming appealing again, offering potential gains for those who invested during the high-rate period.
As the easing cycle unfolds, the bond market may enter a period of recovery, presenting an opportunity for investors to benefit from both stable income and capital appreciation.
As shown in the chart below, the current yield for the 20-year Treasury and investment-grade corporate bond ETFs is over 4%, which is quite attractive. Recently, it was reported that Singapore’s core inflation stands at around 2.1% and is expected to range between 2.5% and 3% in 2024.
With bond yields comfortably outpacing inflation, I am happy as they also form an important part to my asset allocation strategy.
<This is not financial advice>
Source: gurufocus
Source: gurufocus
