Rebound for bonds?

Bonds suffered one of their worst years in history this year, but some on Wall Street expect a rebound in 2023. This year’s blitzkrieg of rate hikes by the Federal Reserve means old bonds with low interest rates are out of favor compared to new bonds coming out with higher rates. Investment-grade bonds are on track to lose about 17% this year, according to Goldman Sachs. The bank forecasts the market will bounce back in 2023 with an estimated 6.8% positive return. Bonds now are paying out the highest yields in more than a decade, which gives them more of a cushion in case prices drop again. More importantly, Wall Street is convinced the Fed will pause its rate hikes early next year. “We see Q1 2023 as a turning point for global fixed-income markets,” strategists at BNP Paribas wrote in a recent report. At UBS, strategists say the yield on the 10-year Treasury could fall to 3% by December 2023, from 3.82% now. When yields fall, it has the reverse effect on bond prices: causing them to rise.