The stock market may be roaring, but 2024 has been Wall Street’s year of the bond fund. Bonds are paying the highest yields in a generation and interest rates are poised to come down. Meanwhile, a record number of retirees are looking to cut risk in their portfolios. That combination has investors pouring money into both indexed and actively managed funds. Wall Street is seeing dollar signs. U.S.-listed fixed-income exchange-traded funds have taken in nearly $150 billion through late July, a record through this point in a year. When looking at mutual funds and ETFs together, taxable bond funds were responsible for nearly 90% of net U.S. fund inflows in the first half, according to Morningstar. After more than a decade of paltry bond yields, and just two years removed from the worst year for bonds on record, the combination of high rates and falling inflation offers investors a rare opportunity for investment income. Rick Rieder, who oversees more than $2 trillion as BlackRock’s chief investment officer for fixed income, is calling the current period “the golden age of fixed income.” A crucial factor shifting bond prices is investors’ expectations for short-term interest rates. When the Federal Reserve began to raise rates in 2022, investors flocked to cash-like investments. Now, as Wall Street bets that rate cuts later this year are all but certain, investors are looking toward bonds instead, grabbing for yields that have already started to descend as bond prices rise. “We’re seeing people move out of cash and into bonds,” Rieder said. “Cash has been flipping a lot of yield, but now there’s a sense that the Fed is going to start lowering rates and that opportunity won’t be there anymore.”
Bond funds have been a bright spot for a money-management industry that has struggled to contend with the growth of passive investing and a steep fall in management fees. While investors have largely begun to shun actively managed stock funds, bond pickers are thriving.
Source: WSJ.com: World News
