Investors Advised to Consider Buying Bonds Despite Fewer Rate Cuts as Stocks and Bonds Diverge
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Investors have been unrealistic in their expectations of monetary policy, with many expecting the Federal Reserve to start lowering borrowing costs in March and pricing in a 66% chance of at least six quarter-percentage-point cuts by the end of the year. However, the latest inflation data has caused a shift in expectations, with derivatives markets now showing a 35% chance that borrowing costs will be 4.5% or higher by year-end, implying four rate cuts or fewer. This makes short-term debt attractive for savers, as they can lock in a similar return to money-market funds or bank deposits. Long-term bonds, although unappetizing in comparison, still offer a high rate relative to what was available previously. For long-term investors, the key question is where rates will be once inflation retur...
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