Asset classes
Active Fixed Income Perspectives Q4 2023: A new era
October 25, 2023
With real yields at their highest levels in 15 years, bonds today can offer more significant value in total returns to a portfolio. And bond yields aren’t likely to revert to the low levels of recent history—we expect they will remain higher for longer.
Vanguard Active Fixed Income Perspectives is our in-depth quarterly commentary on the bond markets, with sector-by-sector analysis and a summary of how those views affect Vanguard’s actively managed bond funds.
Key takeaways
Performance
The Bloomberg Aggregate U.S. Bond Index returned –3.23% for the third quarter as investors readjusted their expectations for interest rates. Intermediate- and long-term yields rose the most. The yield on the U.S. 10-year Treasury broke above 4.50% for the first time since 2007. Credit spreads remained tight.
Looking ahead
Much depends on the numbers for both the economy and inflation. We don’t buy into the most dire or most optimistic forecasts for either. We believe the Federal Reserve is at or near the end of its hiking cycle and is unlikely to cut rates before mid-2024.
Approach
Our theme of “higher for longer” interest rates remains intact. High-quality investment-grade corporates look the most attractive among the options in credit right now. Tax-exempt municipal bonds offer the most compelling tax-equivalent yields at longer maturities.
Active fixed income perspectives: Q4 2023
Note: Investments in bonds are subject to interest rate, credit, and inflation risk.
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