Looking back at our outlook last year, our bond forecast for 2023 has been confirmed. With inflation rates falling and interest rates rising, a certain balance was achieved on the bond market over the course of the year.
As a result, after years of extremely low interest rates, the investment universe is now complete again thanks to the renewed attractiveness of bonds as an asset class – and is likely to remain so for the foreseeable future in our opinion.
The development of real interest rates, i.e. adjusted for inflation, gives potential fixed income investors grounds for satisfaction. They are now in the positive territory – in some cases significantly so – in all major bond market segments.
This means that investors do not necessarily have to hope for price gains by their securities due to interest rates possibly falling again soon. In our opinion, real interest income alone is currently reason enough to invest, although we expect interest rates to fall slightly in 2024 and, as a result, also expect moderate upside potential for prices.
- Bonds now a fully fledged part of the investment universe after many years of low yields.
- Investment grade has it all: Interesting real yields and low default rates.
- Corporate bonds more appealing than government bonds due to yield pick-up and sound fundamentals .
In 2024, we expect mid- to high-single-digit percentage value growth on most of the world’s bond markets. Corporate bonds are likely to be more interesting than government bonds due to their yield pick-up and sound fundamentals. Investment grade (IG) has it all, offering interesting real yields and low default rates.
By contrast, high-yield (HY) bonds usually harbour high risks due to their lower credit rating in an environment of weaker economic data and rising insolvency rates and are likely to be considered by many investors as a niche investmentonly. As far as maturities are concerned, we consider a mix of short-term (1 to 2 years) and longer-term (up to 10 years) securities to be advisable – with an average of around 4 to 5 years.
From a regional perspective, U.S. bonds offer a clear yield advantage over the European market for example, offering investors from other currency areas a good opportunity to increase the U.S. dollar exposure of their portfolios if necessary.
However, we expect the U.S. dollar to weaken somewhat in the months ahead. Currency losses, for example for investors from the Eurozone, could then only be avoided by hedging accordingly, the costs of which would probably exceed the potential yield advantage. Therefore, EUR IG corporate bonds are our preference for Eurozone investors in 2024. Like their U.S. counterparts, they retain good fundamentals and, thanks to higher yields, could benefit from a possible return of capital flows from alternative forms of investment such as real estate.
When it comes to Eurozone government bonds, Italy could be of interest. The interest rate difference (spread) to German government bonds (Bunds) is currently around 200 basis points for ten-year securities and could widen slightly in the months ahead. The reason for this premium is political uncertainty in Italy coupled with debate about the country’s budget and national debt.
Although we expect some difficult phases, we do not anticipate sustained upheaval in Italy. On the one hand, most Italian government bonds (BBB rating) are held in the country itself; on the other hand, European programmes such as NextGenerationEU or European Central Bank instruments (TPI, PEPP) should provide some reassurance for marketparticipants. By contrast, Bunds offer much greater security with their AAA rating. However, their yield is particularly low due to their virtually unique position as a safe haven in the Eurozone.
The corporate bond markets in the emerging economies are likely to remain largely dependent on China. The economic superpower’s moderate growth and low inflation rates should ensure relative calm in this area. In the HY segment, however, the high proportion of Chinese property developers and banks could prove to be a disruptive factor.
EUR IG corporate bonds are our preference for 2024 because they have good fundamentals and could benefit from a return of capital flows from alternative forms of investment.
FAQs
In 2024, we expect mid- to high-single-digit percentage value growth on most of the world's bond markets. Corporate bonds are likely to be more interesting than government bonds due to their yield pick-up and sound fundamentals. Investment grade (IG) has it all, offering interesting real yields and low default rates.
What is the economic outlook for Deutsche Bank in 2024? ›
Deutsche Bank's U.S. economists released an updated outlook with the key change being they no longer expect a mild recession to emerge during 1H 2024 and now foresee 2024 real GDP growth at a solid 1.9%.
What is the bond outlook for 2024? ›
We expect the Fed will reduce its fed funds target rate to 4.75 percent by year-end 2024, as core inflation moves back towards target, the economy slows, and unemployment rises. With nominal bond yields still relatively high, we view IG fixed income as attractive.
What is the bond yield forecast for 2024? ›
The firm's 10- to 15-year forecast for high-yield bonds is 6.5% for 2024, down from 6.8% for 2023, and its forecast for emerging-markets sovereign bonds dropped to 6.8% from 7.1%.
What is the economic forecast for Deutsche Bank? ›
Deutsche Bank said in a note on Monday that it now expects the U.S. economy to grow by 1.9% this year, on a quarterly average basis, compared with its prior forecast of 0.3%.
What is the Bank outlook for 2024? ›
Profitability will dip but remain in good shape, and banks will build capital. While net interest income (NII) may decline in 2024, we expect banks to generate a return on common equity of 10%-11% and to build capital through earnings retention, particularly as they plan for more stringent capital regulation.
What are the financial predictions for 2024? ›
Outlook for 2024–2034
The growth of real GDP slows to a rate of 1. 5% in 2024 as inflation continues to decline and the federal funds rate falls. After 2024, real GDP grows at a moderate pace.
Is 2024 a good time to invest in bonds? ›
As inflation finally seems to be coming under control, and growth is slowing as the global economy feels the full impact of higher interest rates, 2024 could be a compelling year for bonds.
Should you sell bonds when interest rates rise? ›
If bond yields rise, existing bonds lose value. The change in bond values only relates to a bond's price on the open market, meaning if the bond is sold before maturity, the seller will obtain a higher or lower price for the bond compared to its face value, depending on current interest rates.
What is the stock market outlook for 2024? ›
The US stock market enjoyed a strong first quarter in 2024, advancing 10%. But inflation was stickier than some expected. In fact, the March CPI number that came out this morning was hotter than expected, too. And that's leading many to question when the Federal Reserve will begin cutting interest rates.
In its April Mortgage Finance Forecast, the Mortgage Bankers Association predicts that mortgage rates will fall from 6.8% in the first quarter of 2024 to 6.4% by the fourth quarter. The industry group expects rates will fall below the 6% threshold in the fourth quarter of 2025.
What is the projected i bond rate for May 2024? ›
The 4.28% composite rate for I bonds issued from May 2024 through October 2024 applies for the first six months after the issue date. The composite rate combines a 1.30% fixed rate of return with the 2.96% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U).
What is the 10 year bond rate forecast? ›
The United States 10 Years Government Bond Yield is expected to be 4.917% by the end of September 2024. Video Player is loading. It would mean an increase of 37.6 bp, if compared to last quotation (4.541%, last update 28 May 2024 20:15 GMT+0).
What is the investment outlook for Deutsche Bank in 2024? ›
Expect only moderate growth in industrialised economies in 2024. The long-term challenge remains the delivery of investments to enhance economic competitiveness and fight climate change. Inflation is moderating but will stay above central bank target levels in 2024.
Why is Deutsche Bank falling? ›
Deutsche Bank Shares Fall After Flagging Potential Hit From Legal Setback. Deutsche Bank shares fell after the German bank said it could have to pay as much as 1.3 billion euros ($1.39 billion) to former shareholders of Postbank after a legal setback.
What is Deutsche Bank S&P 500 prediction for 2024? ›
Equity analysts at Deutsche Bank have raised their 2024 S&P 500 target to 5,500, joining a host of other Wall Street strategists who have expressed greater optimism as stocks have come roaring back from last month's selloff.
What is the economic outlook for Germany in 2024? ›
In 2024, the government deficit is expected to decrease to 1.6% of GDP, as a result of the phase-out of measures to mitigate the impact of high energy prices dropping from 1.2% of GDP in 2023 to 0.1% of GDP, and of a robust development of government revenue.
What is the outlook for Deutsche Bank share? ›
DB Stock 12 Month Forecast
Based on 12 Wall Street analysts offering 12 month price targets for Deutsche Bank AG in the last 3 months. The average price target is $19.17 with a high forecast of $23.55 and a low forecast of $14.43. The average price target represents a 12.76% change from the last price of $17.00.
Is recession coming Deutsche Bank? ›
Mark Wall, Deutsche Bank's Chief Economist, Europe ``believes we are currently in a mild recession in H2 2023 that will stretch into the start of 2024, but the reality is that Euro Area growth has stagnated since Q3 2022 and looks set to do so until mid-way through 2024.
Is Deutsche Bank recovering? ›
Deutsche Bank shares popped to a more than six-year high on Thursday, after the German lender reported a 10% rise in first-quarter profit, beating expectations amid an ongoing recovery in its investment banking unit.
