Extending Duration Near Fed Policy Changes Tends to Pay Off

AVERAGE 12-MONTH RETURNS NEAR FED POLICY CHANGES

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Source: Morningstar and Bloomberg as of 6/30/2024. Average returns based on 12-month returns following Fed rate cycle changes using monthly data since 12/31/1982. Returns for periods longer than one year are annualized. Money Markets, Short-Term Bonds, and Intermediate Core Plus Bonds are represented by Morningstar mutual fund category averages.  Past performance does not guarantee future results.
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Source: Morningstar and Bloomberg as of 6/30/2024. Average returns based on 12-month returns following Fed rate cycle changes using monthly data since 12/31/1982. Returns for periods longer than one year are annualized. Money Markets, Short-Term Bonds, and Intermediate Core Plus Bonds are represented by Morningstar mutual fund category averages.  Past performance does not guarantee future results.

CHART HIGHLIGHTS 

  • The Federal Reserve (the Fed) has signaled short-term interest rates cuts soon.
  • Over the past four Fed rate cycles, higher-duration bonds outperformed shorter-duration bonds and money markets near Fed policy changes, with the strongest returns before the first cut. 

KEY TAKEAWAY

Extending duration before the Fed starts cutting rates may offer better return potential.

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Footnotes

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