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What the Fed's next cut could mean for high-yield bonds

The bond market (^TYX, ^TNX, ^FVX) looks increasingly attractive this week to Wall Street as investors await the Federal Reserve's latest interest rate decision due out on Wednesday, December 18. Brandywine Global Portfolio Manager Bill Zox joins Market Domination Overtime's Julie Hyman and Josh Lipton after Monday's market close to speak more about his outlook on high-yield bonds. "core fixed income has been struggling for quite some time. And since the Fed cut by 50 basis points to start this rate cutting cycle off in September, core fixed income has actually been performing poorly... we've taken almost 75 to 100 basis points of rate cuts out of the market," Zox says. "We'll see where we go. But the two-year yield and the ten-year yield are still pretty close to each other. And I think if we get a more normal relationship there or fixed income could struggle with a ten-year Treasury, you know 4.75% to 5% somewhere in that range, that would not be pleasant." Wall Street's consensus has been that the Fed will cut interest rates by 25 basis points this week. "It's also possible that we shift our focus to rate hikes rather than rate cuts at some point next year," Zox states. "That could be tough on core fixed income, that could be tough for equities too. High yield is as you said, it is in this middle ground. But we've got a nice yield of about 7.2% in the high-yield market right now. To watch more expert insights and analysis on the latest market action, check out more Market Domination Overtime here. This post was written by Luke Carberry Mogan.