The Federal Reserve’s expected easing action could trigger investors to dump cash and allocate more capital to fixed-income assets following a period of depressed prices, according to Doug Boneparth, president and financial Advisor at Bone Fide Wealth. The bond market could be poised for a rebound if the economy stalls and the Fed resumes cutting interest rates. Bond prices have remained low this year amid concerns over spiraling debt and rising budget deficits, keeping yields elevated. “Fixed income is interesting. You would think as rates come down, bond prices are going to go up, yet we see yields actually going up every almost every other day here,” Boneparth said in an interview on the sidelines of Future Proof Festival in Huntington Beach, California. Yields and prices move in opposite directions. “So will fixed income finally have its moment after in 2022 having the worst year in a century? We obviously have gotten nowhere near back to highs in the fixed income market. So something’s going on here in the bond market. It very well could be an opportunity,” he added. “As rates come down, you’re going to see investors allocate their cash to other places, certainly out of cash, as those yields come down.” Investment firms are already advising clients to adjust their portfolios in anticipation of lower interest rates. BlackRock is recommending reducing high cash allocations, which are becoming less attractive as yields fall, and increasing exposure to fixed-income assets. Invesco recently said the Fed’s rate cuts provide a favorable environment for bond investments, particularly in intermediate-term bonds. As the macroenvironment continues to shift, Boneparth said it’s important for investors to play the long game and not try to time the market. “It’s so easy to play a short game — the trade, and maybe get a little dopamine hit and some cash in your pocket. It’s much harder to do something very consistent and disciplined over the long term,” he said. “Whether the Fed is cutting rates or hiking rates, or there’s many other, you know, event that may spark volatility, obviously being steady, controlled and disciplined when it comes to investing is going to help you navigate those environments.”
