Bond investors are hoping that the Year of the Dragon will bring them growth, progress and abundance — but they’ll need the help of the Federal Reserve to dig themselves out of the “greatest bear market of all time.”

Last year, the Fed raised interest rates to their highest since 2001 — erasing the value of some of the safest bonds (i.e., long-term US Treasuries) by over 50%. But with rate cuts coming, fund managers are the most bullish on bonds since the Great Financial Crisis. And according to a Bank of America survey last month, 45% of respondents expect bonds to be the best-performing asset class of 2024.

Bond boom: Let’s look at the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT), a long-dated bond fund and one of the most popular bond ETFs. From its peak to bottom,TLT

lost over half its value and finished 2023 in the red.

• Despite this, it recorded $24.4B in net inflows in 2023 — sendingTLT
  up nearly 19% from its October low.
• Research from ETF.com shows that every 1% rate cut could result in a 16% price increase forTLT
  , which could be welcome news for bond traders.

How many 16% increases will bonds see?

Late last year, PIMCO underscored the attractiveness of bonds compared to stocks — labeling it the “prime time” asset for 2024 (BBG). The potential bond returns are capturing Wall Street’s attention — but that’ll depend on the various scenarios of how low rates will go.

• Goldman Sachs analysts are among the few who expect a more reserved Fed that’ll cut rates twice for a total of 0.50%.
• While the Fed is entertaining at least three interest rate cuts in 2024, potentially bringing rates down to 4.6%, banks anticipate rates to hover closer to 4.0%.
• And if the US hits a recession, UBS analysts think the Fed could cut 11 times to bring rates 2.75% lower.

We get it. Bonds are boring (sorry, bond investors) — but they’re a major portfolio component for many, especially those nearing retirement. And they can even sometimes beat stocks.