Investment implications
Investors may want to consider moving out of cash into longer maturities sooner rather than later. Even though some bonds have lower yields than cash, they've benefited materially more than cash in the past six Fed rate-hiking cycles on average. Since the market anticipates the next easing cycle, much of the positive returns accrue around the time of the last hike.
Corporate bonds have a better average return profile than Treasuries and the bond index. Because corporate bonds have higher yield and spread-tightening potential, they've tended to outperform other fixed-income sectors.
An incremental step out of cash into bonds isn’t as big a risk as one might expect. Even if the Fed keeps hiking, our analysis indicates that bond returns would be comparable to cash in the short term, and bonds would outperform longer term based on past cycles.
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Monthly Market Review — August 2024
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Brett Hinds
Jameson Dunn