Expert insight
Vanguard tells Barron’s it’s a “new day for bond market”
November 15, 2023
We see “tremendous value” in bonds, said Sara Devereux, global head of Vanguard’s Fixed Income Group, in a recent interview with Barron’s. There’s likely to be continued volatility in the short term, but if you look through the noise, higher rates for longer could mean better long-term returns for investors.
Read Devereux’s full interview with Lauren Foster, senior writer at Barron’s. (Note that Barron’s content is available by subscription only.)
Here are the key takeaways:
- Because the relative advantage of short-term government bonds can fade quickly, investors may fare better when they lock in higher rates for longer.
- Given expectations of a recession in 2024, Vanguard Fixed Income Group is prioritizing quality. That includes Treasuries, agency mortgages, municipal bonds, and especially high-quality corporate bonds.
- In municipal bonds, valuations remain strong in longer-term investment-grade issues with ratings below AAA.
- As for high-yield bonds, Devereux said Vanguard is neutral “in the sense that we’re not overweight” and that while there are opportunities, investors have to be selective. “You don’t want to buy every household name in the index, you want to be really choosy about picking the best names because avoiding the losers is just as important as picking the winners.”
- Vanguard Fixed Income Group is keeping a close eye on commercial real estate due to the current rate environment as well as softened demand for offices post pandemic, among other factors. However, Vanguard believes that any downturn in the commercial real estate sector will be relatively contained.
Related links:
Not a Barron’s subscriber? Access more insights from Vanguard through the links below:
- Default factor is a key differentiator for bond funds (article, issued November 2023)
- Commercial real estate: Weathering the storm (article, issued October 2023)
- Munis, Fed policy, and negative convexity (article, issued August 2023)
Notes:
All investing is subject to risk, including possible loss of the money you invest.
Investments in bonds are subject to interest rate, credit, and inflation risk.
U.S. government backing of Treasury or agency securities applies only to the underlying securities and does not prevent share-price fluctuations. Unlike stocks and bonds, U.S. Treasury bills are guaranteed as to the timely payment of principal and interest.
High-yield bonds generally have medium- and lower-range credit quality ratings and are therefore subject to a higher level of credit risk than bonds with higher credit quality ratings.
Although the income from a municipal bond fund is exempt from federal tax, you may owe taxes on any capital gains realized through the fund's trading or through your own redemption of shares. For some investors, a portion of the fund's income may be subject to state and local taxes, as well as to the federal Alternative Minimum Tax.