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Fixed Income Perspectives

Bonds Gain, Look to Finish the Year Strong

December 2024

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November delivered positive total returns for fixed income investors, reversing losses seen earlier in the year. The journey wasn't smooth, however. Election results initially drove yields higher as markets debated the potential impacts of new policies on economic growth, inflation, deficits, and interest rates.

The U.S. 10-year Treasury tested 4.5%, a level last reached in May, before settling near 4.2% by month's end. Market sentiment shifted as investors adjusted to a second Trump presidency. The nomination of Scott Bessent as Treasury Secretary reassured markets, with his selection being viewed as a stabilizing influence in the administration. This contributed to lower yields by easing fears over uncertainty.

Chart 1, 1:02– November was a strong month for fixed income across the board. U.S. Treasuries posted a total return of 78 basis points, bringing year-to-date gains to just over 2%. Investment grade corporate bonds also performed well, with total returns reaching approximately 4% for the year.

Asset Class Performance

Sources: Bloomberg US Treasury Index, Bloomberg Municipal Bond Index, Bloomberg US Corporate Investment Grade Index, Bloomberg High Yield Municipal Bond Index, Bloomberg US Corporate High Yield Index as of 11/30/2024.
Information is subject to change and is not a guarantee of future results

Municipal bonds added to the positive momentum, delivering roughly 2.5% in year-to-date returns. High-yield bonds stood out as the top performer, with both taxable and tax-exempt sectors benefiting from a robust economy, below-average default rates, and strong demand for income-generating assets. This resulted in over 8% returns so far this year.

Fixed Income Asset Class and Maturity Focus Yield Comparison

Source: Bloomberg Municipal 1-5yr Index, Bloomberg Taxable 1-5yr Government Credit Index, Bloomberg Municipal Short/Intermediate Index, Bloomberg Taxable Intermediate Government Credit Index, Bloomberg Municipal High Index, and Bloomberg US Corporate High Yield Index; investment grade and high yield municipal bond yield-to-worst is adjusted for 37% Federal tax rate + 3.8% Medicare Surcharge. All data as of November 30, 2024.
Information is subject to change and is not a guarantee of future results

Chart 2, 1:44– Now that the election is behind us, the Federal Reserve is in focus as its final meeting of 2024 approaches on December 18. Markets are pricing a 70% chance of a 25-basis-point rate cut, which would bring the federal funds rate to a range of 4.25% to 4.5%.

Federal Funds Futures: Change from Current Level (%)

Source: Federal Reserve Bank, Bloomberg WIRP, CNR Research as of 12/4/2024
Information is subject to change and is not a guarantee of future results

Chart 3, 2:03– Expectations for further cuts in 2025 have moderated, with markets now anticipating a slower pace of easing. Key upcoming data releases, including November payrolls and consumer price index data, will likely shape the Fed's outlook. October payrolls fell short of expectations, adding to the anticipation of these next economic reports.

CNR expects the Fed to reduce rates by 25 basis points in December, with gradual easing through 2025. However, we maintain our higher-for-longer interest rate theme. We believe the U.S. 10-year Treasury will remain range-bound between 3.75% to 4.25%, offering an attractive opportunity for fixed income investors.

Important Information

The views expressed represent the opinions of City National Rochdale, LLC (CNR) which are subject to change and are not intended as a forecast or guarantee of future results. Stated information is provided for informational purposes only, and should not be perceived as personalized investment, financial, legal or tax advice or a recommendation for any security. It is derived from proprietary and non-proprietary sources which have not been independently verified for accuracy or completeness. While CNR believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Actual results, performance or events may differ materially from those expressed or implied in such statements.

All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met, and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.

City National Rochdale, LLC is an SEC-registered investment adviser and wholly-owned subsidiary of City National Bank. Registration as an investment adviser does not imply any level of skill or expertise.

Fixed Income investing strategies & products. There are inherent risks with fixed income investing. These risks include, but are not limited to, interest rate, call, credit, market, inflation, government policy, liquidity or junk bond risks. When interest rates rise, bond prices fall. This risk is heightened with investments in longer-duration fixed income securities and during periods when prevailing interest rates are low or negative.

Index Definitions:

Bloomberg U.S. Treasury Index: includes all publicly issued, U.S. Treasury securities that are rated investment grade, and have $250 million or more of outstanding face value.

The Bloomberg US Municipal Bond Index measures the performance of investment grade, US dollar-denominated, long-term tax-exempt bonds.

The Bloomberg US Investment Grade Corporate Bond Index measures the performance of investment grade, corporate, fixed-rate bonds with maturities of one year or more.

Bloomberg Municipal Bond Muni Short (1-5) Index 1-5 year maturities of the US Municipal bond index.

The Bloomberg US 1-5 year Government/Credit Float-Adjusted Bond Index is a float-adjusted version of the US 1-5 year Government/Credit Index, which tracks the market for investment grade, US dollar-denominated, fixed-rate treasuries, government-related and corporate securities.

The Bloomberg Municipal Managed Money Short/ Intermediate Index is a market-value weighted index that measures the performance of publicly traded municipal bonds in the short/intermediate term tax-exempt bond market. The index includes: state and local general obligation bonds, revenue bonds, insured bonds, and pre-refunded bonds.

The Bloomberg U.S. Intermediate Government/Credit Index is an unmanaged index that measures the performance of investment grade, fixed-rate, taxable corporate and government-related debt securities with maturities of 1–10 years. The index is based on all publicly issued debt securities.

The Bloomberg Municipal High Yield Bond Index measures the performance of non-investment grade, US dollar-denominated, and non-rated, tax-exempt bonds.

The Bloomberg US Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Bloomberg EM country definition, are excluded.

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