Q: How did monetary policy evolve in 2024, and what was the impact on fixed income markets?
Henry Song, CFA
I think the beginning of this year, 2024, is very reminiscent of what happened in 2023. It's almost the same thing. The market betting on Fed’s with the multiple rate cuts, but I assume that didn't materialize with each subsequent month of CPI prints. With the inflation being stubborn, the cuts getting pushed out. You started seeing the market respond to that. Beginning of the year, we had the 10-year (Treasury) at just shy of 3.9%. It went up to 4.7% by mid-April, then you had a rollercoaster all the way down to 3.6% back to September. Now we're at 4.2%. So, the market went on this rollercoaster ride.
But I would say the biggest theme, what all this did to the fixed income market is it gave people another opportunity to really buy into it. I think that translated into strong flows into the fixed income market this year, and that probably had the single biggest impact on spreads and everything else. I think the demand just became so strong. I think as the market now kind of consolidates towards this idea of higher for longer, as opposed to this quick-cut scenario that was kind of priced in 2023 and again early 2024. Now, we're in this higher-for-longer phase.
I think that's a major backdrop as we talk about spreads and everything else later is this thought of the yield's going to be higher for longer. And most importantly, as my co-portfolio manager, Mark Jackson always says, as fixed income investors, you really only make money when the real interest rates are positive, and we're in that sort of environment right now. So, I think it is a good time to be in fixed income from that perspective. So overall, l think it's been a very positive year for fixed income, and it looks like, given where rates are headed, where inflation's headed, it's going to continue to be a good year in 2025 as well.