While shorter-term bond yields have declined significantly since 2023, yields on longer-term bonds are trending higher as 2024 ends. Investors appear focused less on recent Federal Reserve (Fed) interest rate cuts, and more on continued solid economic data and inflation trends.
Investment strategists surveyed by Bankrate see the 10-year Treasury yield at 4.14 percent at the end of December 2025. That's up from the third-quarter 2024 prediction of 3.53 percent, but still slightly under 4.53 percent, the current trailing-12-month yield of the 10-year Treasury.
For 2025, bond investors might want to make themselves comfortable with where yields have been in 2024. The US economy is expected to post steady growth, without overheating or sliding into recession. At the same time, inflation is expected to remain under control but not fall significantly.
We expect: Another cut to the Fed's target for short-term rates on December 18, 2024, putting its policy rate at 4.25%–4.5% for year-end. We anticipate the Fed will reduce its rate target further in 2025 to a range of 3.75%–4%.
Client-ready article summary. The equity market did well in 2024, setting new highs and delivering strong returns. This shows the importance of sticking to your investment plan and ignoring market noise. As we head into 2025, it's important to review your portfolio with your advisor and consider rebalancing into bonds.
Vanguard's updated 10-year annualized return projections:
Global bonds, ex-U.S.: 4.3% - 5.3% U.S. bonds: 4.3% - 5.3% Global equities (ex-U.S., developed): 7.3% - 9.3% Global equities (emerging): 5.2% - 7.2%
While it may be a great time to buy, hold, and ladder bonds, the outlook is also bright for investors in funds that manage bonds with an eye to making money as prices rise. Funds offer a way for investors with fewer assets to get exposure to bonds even if they cannot afford to build a ladder of individual bonds.
The US 10 Year Treasury Bond Note Yield is expected to trade at 4.50 percent by the end of this quarter, according to Trading Economics global macro models and analysts expectations. Looking forward, we estimate it to trade at 4.27 in 12 months time.
The future value formula is FV=PV*(1+r)^n, where PV is the present value of the investment, r is the annual interest rate, and n is the number of years the money is invested.
Rising inflation makes bonds less attractive, too, because it erodes their value. If a bond pays 4% interest, and inflation reaches 5%, then the bond's effective rate of return is negative. Even before 2022, bonds weren't doing all that well.
Global growth forecasts are largely unchanged from last quarter, with the pace of economic expansion in 2024 slowing moderately in 2025. Easing inflation, resilient consumers, and a broadening of central bank rate cuts underpin our expectations for a soft landing.
Series EE savings bonds issued May 2024 through October 2024 will earn an annual fixed rate of 2.70% and Series I savings bonds will earn a composite rate of 4.28%, a portion of which is indexed to inflation every six months. The EE bond fixed rate applies to a bond's 20-year original maturity.
In fact, today's bonds offer more yield for less risk. The back-up in yields since 2021 has allowed investors to earn significantly higher yields relative to the credit risk of a bond issuer. As a result, investors no longer need to rely on low-quality, high-risk bonds to earn attractive yields.
This article is part of a series discussing the results of Bankrate's Third-Quarter 2024 Market Mavens Survey: Survey: Market strategists see 10-year Treasury yield at 3.5% a year from now.
Drivers of Growth in 2024
The total number of mutual fund folios has expanded to 20.45 crore, reflecting growing investor interest and trust in the mutual fund ecosystem. Equity Fund Inflows Surge: August 2024 saw a 3% increase in equity fund inflows, amounting to ₹38,239 crore.
Mike Cudzil, senior bond portfolio manager at Pimco, says he believes bonds will be attractive relative to stocks in 2025. If the Fed cuts rates further this year, as expected, that would give bondholders a boost in price. Bond yields and prices move inversely.
The 10-year U.S. Treasury note is a debt security issued by the U.S. government to help fund various government obligations. The security pays a fixed rate of interest every six months and the principal amount is returned to investors at maturity, which is 10 years from the issuance date.
Despite 2 cuts in the short-term fed funds rate and the likelihood of more to come, 10-year Treasury bonds yield more as of December 3, 2024, than they did at the beginning of the year.
Bonds can perform well in a recession as investors tend to flock to bonds rather than stocks in times of economic downturns. This is because stocks are riskier as they are more volatile when markets are not doing well.
Individuals do not pay tax on their bond gains until a chargeable event occurs. This tax 'deferral' is one of the features that sets bonds aside from other investments. However, when a chargeable event does occur, a gain will be taxed in the tax year of that event.
Our 10-year forecast for emerging markets equities stood at an annualized range of 5.2% to 7.2% as of a November 8, 2024, running of the Vanguard Capital Markets Model (VCMM). That's down from a range of 5.7% to 7.7% as of a June 30, 2024, running of the VCMM.
It's not too late to join the bond party. If you're still parked in cash or cash equivalents in lieu of bonds—the “T-bill and chill” strategy made popular in 2022—you're losing out on the daily income accrual provided by higher-yielding bonds, as well as the potential price gains as yields continue to decline.
The S&P 500's annual average return in 2024 was 23.31%, a little less than 2023's 26% jump. Returns may fluctuate widely yearly, but holding onto investments over time can help.