Over the last few days, three of the major Central Banks – Bank of England, Bank of Japan and US Federal Reserve - have completed their rate setting meetings – and each has had a different outcome: up, down and no change!

Investor allocations to bonds have been low in recent years with many investors preferring to hold cash or money market funds instead. In the period of low/rising bond yields and high deposit rates, this made perfect sense. Now, as we enter the next phase of the interest rate cycle, this is no longer the case.

So far, much of 2024 has been a waiting game with the market focused on US inflation and when it might spur the Federal Reserve (Fed) to cut interest rates. However, there have been signs that the Fed’s string of rate hikes may finally be bringing inflation under control. Monthly inflation was flat in May—its lowest level since July 2022—which helped push the year-over-year inflation rate down to 3.3% from 3.4% in April. 

In the latest Strategic Thinking video, Alex Pelteshki, co-manager of the Aegon Strategic Bond strategies, discusses the current market environment with central bankers across both sides of the Atlantic rushing to repeat that the path of their policy rates is exclusively data dependent from here on. Alex also talks about the market reaction and the outlook for fixed income, explaining why the team believe there is room for the US Treasury Yield curve to become steeper by year end, making it one of the biggest opportunities out there.

The dust is settling on a historic election result. A Labour landslide on the scale of 1997 gives new Prime Minister Sir Keir Starmer a huge majority and leaves the Conservatives licking their wounds, having gained their lowest share of the vote and lowest number of MPs ever. The reaction of financial markets was less spectacular though.

Hot on the heels of Meta Platforms, tech giant Alphabet has joined the dividend game. Both companies’ join Microsoft, Apple and Nvidia as ‘big tech’ dividend payers. Beneath the surface more tech dividends are emerging, with Salesforce and Booking.com having their dividend debuts in 2024. This is a significant development for a space with a long-held preference for buybacks. 

For income-oriented investors, now is the time for bonds. As rates have shifted higher, coupon rates on newly issued bonds have continued to climb higher, offering income opportunities rarely seen in recent years. Notably, we think high yield bonds are worth a closer look as they provide high income and compelling total return potential. 

Back in 2020, I penned an article titled ‘The Dividend Dilemma’. It was the depths of the Covid-induced market selloff; companies were cutting or suspending dividends left, right and center; and analysts were predicting big cuts to global dividends from which they would take years to recover. I anticipated a fall of around 30%.