In Q2 2024, the global debt market experienced a notable shift, with bond yields reaching post-financial crisis highs. This environment presents opportunities for high-quality fixed income to generate substantial returns as inflation moderates and the Federal Reserve signals potential rate cuts. Morgan Stanley's analysis highlights a strong historical correlation between starting yields and subsequent five-year returns, suggesting a favorable outlook for bonds. As inflation cools and economic growth slows, investors are encouraged to focus on intermediate-duration bonds, agency and nonagency securitized bonds, and select investment-grade corporates. 

This article explains why investors should monitor central bank policies and look for opportunities in undervalued sectors of the bond market.