3 Bond Strategies For The New Year

strategyIn my last post, I took a look back at the fixed income strategies that I proposed at the beginning of 2013 to see how my ideas fared.  In some ways, the year shaped up much the way I expected with modest economic growth and the Fed maintaining their quantitative easing program.  However, while the Fed’s actions kept short term interest rates low, the Fed’s general tone and guidance made investors nervous, causing longer term rates to rise – and bond portfolios to suffer.

These events were a great illustration of how forecasting the market environment is not just about data analysis, but also very much about investor sentiment.  With the Fed continuing to be active with QE, what they say is in some ways as important as what they do.  This should continue to be a significant theme in the New Year.

So what’s on tap for bond markets in 2014?  Like last year, it will likely be all about slow growth and policy-driven markets.  The Fed has announced that it will begin to taper its bond-buying program in January, which should continue to drive up the rates on 5+ year bonds.  Meanwhile, the Fed Funds rate will probably remain zero for the year, anchoring short term fixed income yields.  Finally, inflation should remain close to historic lows, and volatility will once again be front and center.

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