Home Guides & Resources chevron_right Investing Bonds Brief: Third Quarter 2022 Published August 1, 2022 Chris KeithSenior Vice President, Fixed Income Manager Even in the most difficult days, bondsA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates. continue to do their job. They produce income and balance riskThe probability that an investment will decline in value in the short term, along with the magnitude of that decline. Stocks are often considered riskier than bonds because they have a higher probability of losing money, and they tend to lose more than bonds when they do decline.. It did not always feel that way over the first half of the year, as the market value of individual bonds fell along with the major indices, but our bonds continued to earn and pay interest when due. In addition to the self-healing quality of bonds, there are a few reasons I believe bonds are poised to break out of their first-half slide. BondsA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates. continue to offer an alternative. If you’re concerned about the economy and what the future holds for investors in all asset classes, then an allocation to bonds is a reasonable alternative. And just like with the stockA financial instrument giving the holder a proportion of the ownership and earnings of a company. market, you can be selective in where you invest within the bondA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates. universe, be it high-quality or junk, long- or short-duration, Treasury or corporate or inflation-protected. YieldsYield is a measure of the income on an investment in relation to the price. There are several ways to measure yield. The current yield of a security is the income over the past year (either dividends or coupon payments) divided by the current price. are higher. This is what we’ve been longing for. Prices on bonds dropped, yieldsYield is a measure of the income on an investment in relation to the price. There are several ways to measure yield. The current yield of a security is the income over the past year (either dividends or coupon payments) divided by the current price. rose, and our reaction was to take advantage when and where we could. Higher yields mean more return and more income—something we all can use. We stuck to the plan in our portfolios, confident that we would reap the rewards for doing so. The economy may in fact weaken. I’m not rooting for a recession. At the same time, I recognize that if the Federal Reserve is to be successful in its battle to tame inflation, a period of slower economic activity is a clear possibility. As my colleague Jeff DeMaso noted in a recent Chart of the Week, consumer and business pessimism reigns. It’s against this backdrop that bonds will continue to be a valuable offset to stock market volatilityA measure of how large the changes in an asset’s price are. The more volatile an asset, the more likely that its price will experience sharp rises and steep drops over time. The more volatile an asset is, the riskier it is to invest in. and an even better source of income heading into the summer and fall. The turnaround may have already begun, as the Bloomberg U.S. Aggregate BondA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates. index returned 2.9% in July. 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. © 2022 Adviser Investments, LLC. All Rights Reserved. Tags: bond fundsbond outlookbondsChris Keithself-healing bonds