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Bonds Struggled in Q1 2024

Bond prices are influenced by factors that can be different from stocks. In the past two years, bonds have been hurt by sharply higher interest rates caused by the Federal Reserve as it moved to constrain high inflation. (When interest rates go up, bond prices go down.) More recently, analysts expected the Fed to begin reducing rates in 2024, as the Fed itself had predicted. That would be good for bond returns.

But while inflation has declined a lot, some data are still too high for the Fed to reduce rates. So short-term rates remain high, and some bond investors are worried about an uptick in inflation. This all leads to uncertainty in the bond markets, and soft returns.

When the Fed eventually lowers rates, bonds may rebound.