• Investors should lock in attractive yields: fixed income team
• Firm is keeping lower-than-average allocation for junk bonds

A pedestrian walks past the Marriner S. Eccles Federal Reserve building in Washington, DC.Photographer: Andrew Harrer/Bloomberg

Now is the time for credit investors to put money to work before the Federal Reserve starts cutting its policy rate, according to Vanguard Group Inc.

The $9.3 trillion global money manager’s fixed-income team led by Sara Devereux wrote in a third-quarter outlook seen by Bloomberg that while “significant” policy easing isn’t expected this year, “investors shouldn’t miss the opportunity to lock in attractive yields and potentially benefit from the price appreciation that would occur when rates eventually decline.”

The team’s base case remains the Fed being on hold most, if not all, of 2024.

But investors are betting there will be at least two rate cuts by year’s end, with the first one occurring in September. Federal Reserve Governor Christopher Waller on Wednesday added to a growing chorus of Fed officials — including Chair Jerome Powell — who have signaled the central bank is moving closer to cutting rates but is not ready to do so quite yet.

Overall, the Vanguard team said, “We are approaching a turning point in the economic cycle, which historically has been a good environment for higher-quality bonds.” Earlier this year, the firm said the Fed’s lack of cuts offered an extended chance for investors to lock in attractive yields for longer.

As for high yield, Vanguard is maintaining a lower-than-average allocation. “We remain cautious mainly because of tight valuations, particularly in higher-quality names,” the note said.