New York, USA – Fixed income funds saw a positive return of 0.50% on average in the first quarter of 2024, marking their second consecutive quarterly gain and fifth positive quarterly return in the last six quarters. Taxable bond funds outperformed tax-exempt bond funds, with taxable funds returning 0.58% compared to tax-exempt funds’ return of 0.27%. Both types of funds ended 2023 on a high note with strong quarterly returns.

In the first quarter of 2024, actively managed fixed income funds outperformed their passive counterparts, with actively managed funds returning 0.54% compared to passive funds’ return of -0.04%. Market participants are optimistic about the Federal Reserve’s plans to keep rates higher until inflation decreases to a sustained 2%. Federal Reserve Chair Jerome Powell has emphasized the need for consistent positive economic data before considering rate cuts.

Job growth in March exceeded expectations, with an increase of 303,000 jobs and a falling unemployment rate of 3.8%, below pre-pandemic levels of 7.5 million unemployed. Hourly earnings have also grown by 4.1% in the past year. Despite strong economic data, inflation remains a concern, with the Consumer Price Index rising 3.5% year over year.

Overall, fixed income markets are expected to perform well in 2024 due to the macroeconomic landscape. Emerging Markets Hard Currency Debt Funds saw gains, while floating-rate and higher yielding funds were top performers in the first quarter. Investors are focusing on the intermediate part of the curve to take advantage of higher rates and strong corporate fundamentals.

The fixed income market is seeing increased interest in active funds, with inflows into actively managed fixed income funds in Q1. Corporate issuers are taking advantage of strong liquidity to meet investor demand. However, uncertainties remain, with expectations of interest rate decreases conflicting with the possibility of rate hikes if inflation does not decrease.

Despite these challenges, the fixed income market remains optimistic about the future. Alternative Bond Funds, Municipal Debt Funds, and World Fixed Income Funds all saw positive returns in the first quarter of 2024. Investors are looking towards shorter duration funds and intermediate parts of the curve to capitalize on current market conditions.

It is crucial for investors to stay informed about the evolving fixed income market and to consider the implications of changing economic conditions. With uncertainties surrounding interest rates and inflation, strategic investment decisions will be essential in navigating the complex fixed income landscape in the coming months.