Title: Bond market outlook 2021 | Preparing as an investor | Fidelity
Headings: Bond market outlook 2021: A winter's tale
Bond market outlook 2021: A winter's tale
Key takeaways
How low interest rates are cooling the bond outlook
Bonds for ballast
Bonds for income
Finding ideas
Taxable bond funds
Fidelity funds
Non-Fidelity funds
Next steps to consider
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Content: How low interest rates are cooling the bond outlook
The Fed's interest rate policies are playing a key role in cooling bond markets in 2021 and beyond. The low return expectations in 2021 reflect moves the Fed made in 2020: Cutting interest rates to multi-decade lows and restarting its purchases of bonds that it began during the global financial crisis. In March, the Fed cut the rate on 10-year Treasury bills from 2% to 0.5%. That decision to adopt ultra-low rates matters because roughly half the yield of a typical corporate bond is determined by Treasury 10-year rates. Super-low rates also matter because they limit the amount that prices can rise and deprive bonds of their ability to increase the value of an investor’s portfolio. For bond prices to rise, yields need to fall as they have been since 1981. Now, with yields approaching zero, they aren’t likely to fall much further. Central banks in Japan and Europe have lowered interest rates below zero, but the Fed’s leaders have said they don't believe negative interest rates are right for the US. Instead, they have pledged to keep rates low for the next several years, even if short term inflation increases and GDP spikes.