After an awful year, a straightforward strategy has been shaping up for investors to get an estimated 6% return in the bond market, according to Guggenheim Partners.
The Federal Reserve’s rapid pace of interest rate hikes since March punished investors in both stocks and bonds, but the central bank’s efforts look to be paying off, at least on the inflation front.The team looked at this year’s starting yield of the benchmark Bloomberg U.S. Aggregate Bond Index, known as the “Agg,” and compared it with 1-year performance over the past 20 years. It suggests the Agg could produce a near 6% total return in 2023, the best since 2008.
Costlier borrowing costs aim to put a damper on spending by consumers and businesses, while helping the Fed tame inflation, ideally without triggering a recession. While a recession is widely anticipated in 2023, recent economic data bolstered hopes that one might be avoided. It is also leaving investors guessing at how long the Fed might need to keep rates high to get inflation headed back down to its 2% annual target.
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