Bonds Are Acting Like Bonds Again

Bonds Are Acting Like Bonds Again

It’s amazing what a turnaround in performance can do for the value of your holdings…and for your peace of mind. That’s right, bonds started behaving more like, well, bonds again in May and investors breathed a sigh of relief.

Clearly there’s been a change in market sentiment, which is something I touched upon in March when I answered the question: Are Your Bonds Broken? It’s probably too early for a victory lap, but a burgeoning sense of vindication seems about right.

This table shows performance since their May 2022 bottoms and YTD 2022 returns for the Bloomberg U.S. Aggregate Bond index, the Bloomberg Municipal Bond index and the 10-year Treasury Bond as of 5/31/22.

We urged bond investors to take advantage of the sell-off over the past few months, even though bond yields were climbing and prices were dropping. After all, you can’t time the market, but you can dollar-cost average into it. That is exactly what we’ve been up to.

Doing so was neither a leap of faith nor wishful thinking. Rather, our confidence in the bond market stems from a disciplined commitment because we are comfortable with how the product works and know that patience can be rewarded. We also know history and how interest rates tend to revert to lower levels when the strength of the U.S. economy is called into question. And attaining the Federal Reserve’s goal of lower inflation means growth likely must slow.

This isn’t to say that additional drawdowns in bond prices are impossible, but when rates hit a new cycle high, it’s a good time to add to existing bond positions.

No matter what’s transpired this year, bonds can still be an investor’s friend by balancing risk and providing income to portfolios. When other asset classes experience sharp declines, that’s when we turn to high-quality bonds. And by the way, those high-quality bonds are producing more income today than they were just a few months ago.

For informational purposes only; not a recommendation to buy, hold or sell any investment product. Past performance is not an indication of future returns. All investments carry risk of loss and there is no guarantee that investment objectives will be achieved. Speak with a financial adviser before taking specific action. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.

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