Investors Shift Focus to Beaten-Up Bonds and Undervalued Stocks
Investors are redirecting their attention to beaten-up bonds and undervalued stocks as they anticipate the Federal Reserve's rate-hiking campaign to come to an end. A recent survey conducted by MFS revealed that 52% of respondents in the fixed-income market have been raising the duration in their bond holdings over the past five months. Additionally, nearly one in three investors plan to increase their allocations to U.S. credit in 2024, while a quarter of respondents expect to boost their investment in emerging-market debt.
According to Jon Barry, the managing director of MFS Investment Solutions Group, there has been a clear trend of de-risking among investors in the last six to 12 months. This shift in sentiment comes after an extended period of low interest rates, with fixed-income investments now being perceived as "fairly valued" for the first time in a long while.
Investing in longer-duration bonds has been a challenging endeavor, with values experiencing significant declines following 18 months of Fed interest-rate hikes. However, recent volatility has led to a rebound. In October, the 10-year and 30-year Treasury yields reached their highest levels in 16 years, but they have since retreated and lifted several major U.S. bond indexes back into positive territory for the year.
For instance, the Bloomberg U.S. Aggregate index, which tracks investment-grade U.S. bonds, is projected to achieve a total return of approximately 0.4% for the year through Wednesday, according to FactSet.
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