You're right, with bonds down 13% in 2022, it was the worst total return in fixed income in history. That said, Fed policy took rates from 0-5.25%, which was also unprecedented. I would say a few things to your question. First, I wouldn’t worry about some big recovery year where they go back up double digits with income and appreciation simply because I don’t see anything now that would cause monetary policy to reverse course back to ZIRP that would likely be required to do so. Second, I would focus on the benefits of diversification, the safety of principal, and returns coming from what their supposed to come from in fixed income – coupon. In that light, the asset class will do all that you want it to go forward, especially if you can feather in other components of the fixed income market on the credit side to enhance that blended yield like high yield, bank loans, and structured credit. Getting to a mid - higher single-digit total return with potential tax advantages is an attractive risk/reward tradeoff. There could be a year where we see some large benefit from the duration of monetary policy shows up to save the next economic calamity that may come, but I am not sure anyone should wish for such a thing either with the subsequent decline in almost all other risk assets to get there. The 10YR being range bound with positive real yields, without a credit event is by far a preferred environment for both fixed-income investors and otherwise.
~ Brian T. Szytel, January 22, 2025

This really does come down to client particulars.  Generally speaking, however, after two years of +20% returns on the S&P, no I do not think this is a time to throw caution to the wind.  Full disclosure: I have never had a year in which I felt that was wise either, so take that for what it's worth.  We find plenty of opportunity to own selective companies, but as a contrarian, the fact that the percentage of bond bulls right now is the lowest it's been in 10 years, I would lean into other asset classes like this to drive income and total return in most portfolios.  Again, if someone is looking for all equities and that is appropriate for them, great.  I would just focus on what is likely to be further rotation and avoid momentum and overvaluation.  I do know what you’re asking, and I believe taking advantage of the other opportunities in fixed income and alternatives will provide a higher risk-adjusted return going forward than otherwise.
Brian T. Szytel, January 21, 2025

Well, the world has gone mad, but for different reasons than implied herein. On Friday, the “better than expected" news was strong payrolls – that made bond yields go up (at the long end of the curve) as growth expectations needed to be stronger. Equities sold off, and the “tension” in the “madness” was that “good economic growth” was “bad for equities” – but only because of the 22x multiple. High valuation makes yield sensitivity more intense. But then the “good news” in Wednesday’s CPI number was less inflationary pressure than had been feared and clear signs of softening in the one thing actually holding the headline number above 2% - rent and shelter numbers. So then, markets rallied as bond yields fell.

So no, I don't think this is hedge fund play money, but yes, I do think it is mad. What I mean by “mad” is the mania that goes into bidding some sectors up to 50-80x earnings so that the vulnerability around a 4.7% vs. 4.6% bond yield could actually be so intense.
~ David L. Bahnsen, January 16, 2025

There really isn’t a crystal ball on where rates on the 10 YR may top out exactly.  However, since I wouldn’t be buying them for a rate call or trade anyway but an allocation-based decision to specific portfolio-related income and safety of principal needs, this is a perfectly fine time to be doing so at present yields.  It would not surprise me to see 10’s hit 5%.  I would be surprised if they hit 5% and remained much above it for very long, however.  So, from a timing perspective, assuming there is a need for income, safety of maturing principal and some tax efficiency, Treasuries make a lot of sense at 4.50%, 4.80% or 5.0%.  As far as curve positioning is concerned, it would depend on the situation but would likely gravitate more toward the belly of the curve in that 5-10 year in maturity.  For a long time, I have viewed over-indebtedness globally as deflationary rather than the opposite; capturing what is close to 5% when that gravitational pull for lower rates will persist is a reasonable risk/reward trade-off.
~ Brian T. Szytel, January 15, 2025