Same Story, Different Year

WHAT does the Federal Reserve's rate-reduction initiative mean in the short run for your fixed-income holdings? You'll recall that one year ago, the Fed cut three times, starting by hacking its benchmark overnight funds rate by 0.50 percentage point in September. The year ended with bond markets and fund returns in retreat. It's wishful thinking that cheaper short-term credit and falling money market yields will spark a general bond-buying binge and propel your 2025 total returns toward 10% by year-end.

-  JEFFREY R. KOSNETT

My judgment is that long-dated bonds are expensive and risky and that we are set for an encore of 2024, when the fourth quarter was a downer, with 19 of 23 fixed-income categories in the red, according to Morningstar. So I do not expect further advances over the 5% to 8% returns earned through the third quarter. Instead, and pardon the cliché, it looks like déjà vu all over again, with a lot of losses and a few breakevens. “If you have 6% in the bag already, which is 2% a quarter, I figure now it is sideways or giving a little back” the rest of the year, says Warren Pierson, co-chief investment officer for Baird Asset Management. Last year, every time the Fed cut, rates on the 10-year note and longer maturities increased, meaning a loss of principal, adds Nick Losey, who manages high-yield and asset-backed securities for Barrow Hanley. (Rates and bond prices move in opposite directions.) He expects a repeat. Inflation is edg