Banking Crisis Brings Bonds Back in Vogue

Bonds Are Back in Vogue

When bond prices were falling along with stock prices in 2022, many clients asked, “Why do I own bonds?”

The banking crisis this month highlights the value of bonds in a diversified portfolio. As fear and uncertainty spiked, investors fled to safety, sending the price of high-quality bonds higher.

The chart below shows the month-to-date and year-to-date returns for a handful of bond-market benchmarks tracking investment-grade and government-issue bonds. So even though the “falling yields” you may have been hearing about in recent weeks seem like a negative short-term outcome for bond investors, the opposite was true in this banking crisis for bonds.

We wouldn’t be surprised if the upward momentum slows as the banking situation resolves, but it’s a good reminder that even the placid bond market can move quickly in response to current events—and that staying diversified redounds to your benefit over time.

Banking crisis gives bonds wings
Note: Chart shows returns for the periods specified through 3/22/23 for the Bloomberg U.S. Aggregate Bond index (Investment-grade in the chart), the Bloomberg Municipal Bond index (Municipal), the Bloomberg Treasury Bond index (Treasurys) and the 10-year Treasury note. Source: Bloomberg.

 

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bondsChart of the WeekChris Keith