In anticipation of the Federal Reserve's expected rate cuts this year, bond prices have been rallying. Despite the recent rise in yields, there are still buying opportunities in the bond market, according to Nuveen's Chief Investment Officer (CIO), Saira Malik.

Many investors, spooked by the painful repricing of bonds over the past two years, have sold their bond positions and shifted their investments into cash and cash equivalents. This has led to a significant increase in assets in money-market funds, which now stand at approximately $5.96 trillion. Data from the Investment Company Institute shows that this figure remained relatively stable over the past year, with a modest decrease of $1.4 billion in the past week.

While there is ongoing debate regarding whether the sidelined cash will eventually flow into the stock market, Malik believes that investors should consider adding duration to their fixed-income portfolios. U.S. investment-grade corporate bonds currently offer yields of approximately 5%, high-yield or "junk bonds" provide yields of around 7.6%, and leveraged loans yield approximately 9%. Although these levels have decreased from their peak in October when the 10-year Treasury yield reached a 16-year high of 5%, it currently stands at around 4.1% as of Monday.

Malik's outlook calls for the 10-year U.S. Treasury yield to fall from its current levels and reach around 3.50% by the end of 2024. In light of this, Nuveen suggests that extending duration in fixed-income portfolios could be a prudent move.

Contrary to market expectations, Malik expects the Federal Reserve to hold off on making its first rate cut of this cycle until the second half of 2024. However, traders in fed-funds futures still place the odds of a 25 basis-point cut in March at approximately 45.8%, according to the CME FedWatch tool.

Once rate cuts are implemented, yields on money-market funds, which have been around 5%, are likely to decline rapidly. This could make cash and cash-like investments less appealing to hold. To gain exposure to a diversified range of corporate bonds, investors often turn to exchange-traded funds (ETFs). The popular Shares iBoxx $ Investment Grade Corporate Bond ETF has seen a growth of 9.8% in the past three months.

Despite the overall positive sentiment in the bond market, Malik emphasizes the need for investors to exercise caution. She points to a slowing U.S. economy and signs of cracks appearing in consumer resilience as reasons to remain nimble and flexible in investment decisions.

The bond market is set for an eventful week, with corporate earnings announcements, a Federal Reserve interest rate decision on Wednesday afternoon, and the release of the monthly jobs report on Friday.

Disclaimer: This article is for informational purposes only and should not be considered financial advice. Individuals should consult their own financial advisors before making any investment decisions.