Rising
yields
were
one
of
last
year’s
major
themes
as
bonds
crept
into
a
bear
market.
Yields
on
the
10-year
Treasury
shot
up
to
as
much
as
the
5%
mark
in
October
—
a
16-year
high
—
but
has
since
dropped
to
just
above
the
4%
level.
Yields
and
prices
move
in
opposite
directions.
But
in
recent
months,
many
have
called
for
investors
to
return
to
bonds
as
prices
are
expected
to
recover
soon.
Falling
yields
may
prompt
investors
to
wonder
which
corners
of
the
fixed
income
market
still
offer
higher
yields
of
up
to
6%.
Brandon
Huang,
head
of
fixed
income
at
LGT
Private
Banking
Asia,
says
2024
will
be
the
year
when
bonds
will
provide
a
“reasonable
risk-adjusted
return
amid
a
normalized
yield
environment.”
“Inflation
has
come
down
in
the
US
and
this
will
allow
the
Fed
to
reduce
the
policy
rate
in
the
middle
of
this
year.
We
conclude
that
investment
grade
bonds
are
compelling
after
looking
at
the
historical
behaviour
of
different
asset
classes
around
rate
cuts,”
he
told
CNBC
Pro.
He
urged
investors
to
“lock
in
yields”
right
now.
“The
yields
available
now
after
the
repricing
in
2022
will
arguably
not
last,”
he
said.
Huang
says
that
if
10-year
Treasury
yields
drop
to
3.75%,
investment-grade
bonds
may
return
6%
or
more
over
the
next
12
months
—
5%
from
coupon
income
and
the
rest
from
price
appreciation
as
rates
fall.
He
prefers
developed
market
bonds
—
especially
the
U.S.
—
to
emerging
market
bonds,
of
longer
durations
exceeding
seven
years.
Sector-wise,
he
likes
financials,
specifically
dated
subordinated
tier
2
bonds
from
Australia
that
may
be
in
line
for
credit
rating
upgrades.
Subordinated
tier
2
bonds
are
paid
back
after
senior
debt
has
been
settled
in
the
event
of
bankruptcy.
Investors
can
also
get
yields
of
above
6%
in
non-investment-grade
or
emerging
market
bonds,
but
Huang
“urges
caution.”
“Investors
are
arguably
not
compensated
sufficiently
for
the
incremental
risk
taken
over
and
above
investment
grade
bonds,”
he
said.
“If
allocating
to
non-investment
grade
bonds,
we
would
prefer
issuers
with
improving
balance
sheets
or
issuers
with
business
operations
that
are
expected
to
perform
strongly,”
he
added.
Remi
Olu-Pitan,
head
of
multi-asset
growth
and
income
at
Schroders,
told
CNBC
Pro
that
mortgage-backed
securities
can
yield
about
5.5%
now
and
“at
a
stretch
6%,”
citing
Fannie
Mae
and
Freddie
Mac
in
the
U.S.
as
examples
of
such
agencies.
Those
mortgage-backed
securities
are
debt
obligations
issued
by
agencies
whose
cash
flows
are
tied
to
the
interest
and
payment
on
a
pool
of
mortgage
loans.
Agency
MBS
have
low
credit
risk
because
they
are
backed
by
the
U.S.
government.
If
investors
are
willing
to
take
on
more
risk,
Olu-Pitan
says,
non-agency
MBS
are
yielding
about
7%
to
7.8%
now.
However,
they
aren’t
guaranteed
by
the
U.S.
government.
Here
are
some
mortgage-backed
securities
exchange-traded
funds
to
consider.
Emerging
market
debt
can
also
offer
high
yield
because
of
the
very
high
real
rates
in
many
such
economies,
Olu-Pitan
says,
with
Latin
America
debt
offering
“easily”
above
7%.
In
investment-grade
bonds,
investors
can
get
above
6%
in
U.S.
financials,
she
added.
—
CNBC’s
Michael
Bloom
contributed
to
this
report.