With rate cuts firmly on the horizon, CIO reiterates the need for investors to manage liquidity—limiting cash balances and locking in yields. (UBS)

Short-term setbacks are possible given the speed of this rally. But with rate cuts on the horizon, we reiterate the need for investors to manage liquidity—limiting cash balances and locking in yields. We remain most preferred on high quality bonds.


Global bonds rallied in late 2023 on slowing inflation and less hawkish Fed commentary.


  • Yields on 10-year US Treasuries fell around 100 basis points in the final months of 2023, retreating from a 16-year peak of 5% in late-October.
  • Global bonds had their best month in November since 2008, while US bonds had their best month since 1985, based on Bloomberg indexes.
  • At the Fed's December meeting the median forecast from top policymakers was for 75 basis points of easing in 2024.

Yields can fall further in 2024, though the pace of this will depend on the economic data.


  • While the bond rally may not be smooth, since markets are already priced for aggressive rate cuts, we do believe it can continue as inflation slows, growth moderates, and the Fed starts to cut rates.
  • Our base case is now for four 25-basis points cuts in 2024, and for the yield on 10-year US Treasuries to end the year around 3.5%, versus 4.04% as of 8 January.

As a result, it still makes sense to lock in current high yields on quality bonds.


  • With rate cuts firmly on the horizon, we reiterate the need for investors to manage liquidity—limiting cash balances and locking in yields.
  • Although yield volatility is likely to remain high in the near term, we expect positive returns for quality bonds across a range of market scenarios in 2024.

Did you Know ?


  • US government bonds have outperformed USD cash in 83% of five-year periods since 1925. If we look at all five-year periods since January 1977 (the earliest point with available data on a higher 2-year than
  • 10-year Treasury yield, known as curve inversion), US government bonds have outperformed in about 90% of the time, and in 97% of five-year periods when the yield curve was inverted at the beginning of the five-year period.
  • The latest market pricing suggests a roughly 62% chance of rate cuts at its March meeting, as of 5 January, down from 73%a week earlier, based on the CME FedWatch tool.

Investment view


Overall, we think quality fixed income has an attractive risk return proposition. We see gains across a range of scenarios, including our based case for a soft landing. Returns would likely be greatest in the event of an economic hard landing. But we even forecast a positive outcome in the even of stronger-than-expected economic growth.


Main contributors - Vincent Heaney, Matthew Carter, Christopher Swann


Original report - What's next for bonds in 2024?, 8 January 2024.