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Bonds: It’s important to look forward, not backward

Bonds: It’s important to look forward, not backward

May 28, 2024

Over the last two and a half years, bonds have had one of their worst performing timeframes ever.

(Source: Morningstar – using the Barclay’s Aggregate Bond Index ETF to track overall bond performance): https://www.morningstar.com/etfs/arcx/agg/performance

 

However, it is important to recognize WHY bonds performed so poorly in the recent past, and how they potentially could be set up well for the future.

 

First, rising interest rates are typically very bad for bonds, and we saw that in 2022.  However, now that rates are potentially stabilizing, we need to look forward to see what history tells us*.

Courtesy of Creative Planning and Charlie Bilello, we see a chart showing how the starting 10-year US treasury yield has been a very good indicator for future bond returns.  Now that we have much higher interest rates than we did in the beginning of 2022, this could set up bonds nicely:

 

Additionally, what if the Fed cuts interest rates at some point later this year, or next year? This chart from YCharts show how bonds reacted once the Fed cut interest rates following the Financial Crisis.

 

 

Remember what Mark Twain said… “History never repeats, but often rhymes.”  Don’t run away from bonds because of the poor performance over these past couple of years, but look forward and how higher rates could potentially set them up for attractive returns.

 

* Past market performance is not indicative of future results.  Investments in bonds are subject to fluctuation in value and subject to market risk, including loss of principal. 

This  article is general in nature and does not constitute an offer or solicitation, and is not intended, and should not be relied upon, as investment or financial advice.

Duly-registered and duly-licensed representatives offer securities through Equitable Advisors, LLC (NY, NY (212) 314-4600), member FINRA, SIPC (Equitable Financial Advisors in MI and TN), offer investment advisory products and services through Equitable Advisors, LLC, an SEC-registered investment advisor, and offer annuity and insurance products through Equitable Network, LLC (Equitable Network Insurance Agency of California, LLC; Equitable Network Insurance Agency of Utah, LLC; Equitable Network of Puerto Rico, Inc.).  Beacon Wealth Partners is not owned or operated by equitable Advisors or Equitable Network.  PPG-6629024.1 (5/24) (Exp. 5/26)