With the Federal Reserve expected to cut interest rates at its December meeting, Morningstar chief multi-asset strategist Dominic Pappalardo joins Wealth! Host Brad Smith to outline why 2025 is an opportune time for investors to shift their cash holdings into fixed income.
Pappalardo says Treasury yields (^TYX, ^TNX, ^FVX) are attractive for investors holding cash. He explains that the yield give-up rate has "sort of normalized now, and the curve is pretty much flat," meaning "there's really no cost to making that trade today."
He adds that "more rate cuts are likely to come, particularly through the first half of 2025," which represents "the opportunity for those longer maturity bonds to actually show price appreciation. So, whereas cash can only generate total return through [a] function of income, longer maturity bonds could produce [a] total return from income as well as price appreciation, which should occur as rate cuts are realized."
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This post was written by Naomi Buchanan.