Investors parked in cash should consider bonds before the Fed pivots, Nuveen says

Bonds have been rallying in anticipation of the Federal Reserve’s pivot to rate cuts this year, but today’s higher yields still leave room for buying opportunities, according to Nuveen’s chief investment officer. “Many investors spooked by” the painful repricing of bonds over the past two years “sold their bond positions and piled their money into cash and cash equivalents,” Nuveen CIO Saira Malik, wrote in a Monday client note.

Assets in money-market funds have ballooned to about $5.96 trillion over roughly the past year, even with a $1.4 billion decrease seen in the past week, according to data from the Investment Company Institute. While there’s plenty of debate about if cash on the sidelines will eventually migrate into the stock market, Malik thinks more investors should now consider adding duration in fixed-income portfolios. The chart shows U.S. investment-grade corporate bonds still kicking off roughly 5% yields, high-yield, or “junk bonds,” offering about 7.6% and leveraged loans are yielding around 9%.

Bonds are rallying on Fed rate-cut expectations, with yields still at some of their highest levels since the 2007-2008 global financial crisis.
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