Investment Grade Bond Outlook 2024

14th April 2024 | by the Investment Grade Team

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The landscape for investment-grade bonds in 2024 presents a nuanced picture shaped by various factors, including interest rate movements, economic conditions, and market dynamics across different regions and sectors.

U.S. Bonds

Expectations for U.S. bonds in 2024 include a nominal annualized return of 4.8% to 5.8% over the next decade. The Federal Reserve’s actions, particularly potential rate cuts, are anticipated to be a major driver of the fixed income market. With rate cuts on the horizon, advisors are considering whether it’s time to add duration to portfolios, with a tilt towards high-quality intermediate bonds. Credit spreads remain very tight, indicating that investors are not being compensated much for taking on credit or interest rate risk​ .

High Yield Bonds

The high-yield sector saw relief in 2023, avoiding a much-feared recession, leading to significant total returns. 2024 maintains a supportive technical backdrop, partly thanks to the improvement in the average rating of the market after the “fallen angels” of 2020. However, with refinancing of maturing bonds, particularly among lower-quality issuers, an increase in default rates to between 4% and 4.5% is expected. Yields above 8% remain historically attractive, despite some compression since the year’s start​ ​.

Emerging Market Debt

Emerging Market (EM) debt is expected to offer enticing total returns in 2024, benefiting from interest-rate cutting cycles in EMs, supported by developed-market monetary easing. This optimism is despite the numerous crises that have affected global markets in recent years​.

Canada and the UK

For Canada, with restrictive monetary policy impacting the economy and inflation risks easing, fixed income strategies might lean towards extending maturities through laddering to achieve smoother returns. In the UK, amidst economic challenges, opportunities in Gilts and longer durations are highlighted, with specific interest in non-cyclical issuers and senior-ranking bank bonds​.

Europe

A cautious outlook is advised, with an emphasis on maintaining a lookout for economic recovery signals​

Corporate Bonds

The new issuance of investment-grade corporate bonds has seen a record surge, driven by a large base of buyers hungry for yield and expectations of Federal Reserve rate cuts. The Bloomberg Credit Index’s yield at the end of 2023 stood at 5.00%, indicating a strong appetite among investors for corporate debt amid an overall bullish sentiment in the bond market​

This overview encapsulates a dynamic environment for investment-grade bonds in 2024, underpinned by a mix of cautious optimism and strategic positioning across various sectors and regions.

Investment-grade bonds are issued by both corporations and governments (including federal, state, and local entities), and new issues come to market regularly while existing ones mature or are bought and sold.

To find a current and complete list of investment-grade bonds available in the US, you would typically look at financial databases and market platforms that track bond markets in real-time. Here are a few steps and resources you can use to find this information:

  1. Financial News and Data Providers: Websites like Bloomberg, Reuters, and Morningstar offer detailed bond market data, including lists of investment-grade bonds. These platforms often provide filters to narrow down searches based on criteria like credit rating, maturity, yield, and issuer type (corporate, municipal, treasury, etc.).
  2. Bond Rating Agencies: Agencies such as Moody’s, Standard & Poor’s, and Fitch Ratings classify bonds by their creditworthiness. Visiting these agencies’ websites can provide lists or databases of bonds they have rated as investment grade (typically BBB- and above for S&P and Fitch, and Baa3 and above for Moody’s).
  3. Brokerage Firms and Investment Banks: Many large brokerage firms and investment banks offer their clients research and tools for finding investment opportunities in bonds. Clients can usually access detailed bond listings through their online platforms.
  4. Direct Government and Corporate Sites: For those interested in specific sectors, visiting the websites of government treasury departments (for Treasuries, municipal bonds) or corporate investor relations pages (for corporate bonds) can provide information on current bond offerings that are considered investment grade.

Given the vast and constantly changing nature of the bond market, these resources will be the most direct and up-to-date way to find detailed lists of investment-grade bonds available in the US. Remember, investing in bonds involves risks, and it’s essential to conduct thorough research or consult with a financial advisor to understand these risks and how specific bonds fit into your overall investment strategy.