NEW YORK, Dec 27 Reuters As bonds emerge from a historic selloff, some investors expect better times in the U.S. fixed income market next year as long as the Federal Reserves rate cuts play out as anticipated.

A fourthquarter rally saved bonds from an unprecedented third straight annual loss in 2023, following the worstever decline a year earlier. The late year surge came after Treasuries hit their lowest level since 2007 in October.

Fueling those gains were expectations that the Fed is likely finished with rate increases and will cut borrowing costs next year a view that gained traction when policymakers unexpectedly penciled in 75 basis points of easing in their December economic projections amid signs that inflation continued to cool.

Falling rates are expected to guide Treasury yields lower and push up bond prices an outcome that a broad swathe of investors are anticipating. The latest fund manager survey from BofA Global Research showed investors are holding their biggest overweight position in bonds since 2009.

Still, few believe the path to lower yields will be a smooth one. Some worry the over 100 basis point drop in Treasury yields since October already reflects expectations for rate cuts, leaving markets vulnerable to snap backs if the Fed doesnt cut soon enough or fast enough.

The market has priced some 150 basis points in cuts next year, twice what policymakers have penciled in, futures tied to the Feds main policy rate show. Benchmark 10year Treasury…