Breaking News
Investing Pro 0
Last Call for Cyber Monday! Save Now on Claim 60% OFF

Fed Leads Investors Into Bonds Amid Stock Market Uncertainty, Higher Yields

By Investing.com (Francesco Casarella)BondsSep 22, 2023 10:51
ng.investing.com/analysis/fed-leads-investors-into-bonds-amid-stock-market-uncertainty-higher-yields-182616
Fed Leads Investors Into Bonds Amid Stock Market Uncertainty, Higher Yields
By Investing.com (Francesco Casarella)   |  Sep 22, 2023 10:51
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
US10Y...
+1.34%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
TLT
-0.80%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
  • Stocks are tanking as markets price in higher for longer scenario
  • Meanwhile, bonds have declined for 2 years in a row and are on track for a third bearish year
  • As economic weakness sets in eventually and rates peak, bonds may become attractive

With all eyes fixated on the recent stock market decline in the aftermath of the Federal Reserve's indication that it will keep interest rates higher for longer, there's another facet of the financial landscape certainly worth investors' consideration.

Over the last few years, bonds have weathered their fair share of challenges, experiencing a notable multi-year period of lower yields, mostly on the back of net-zero interest rates in most developed economies.

However, as yields stay stubbornly high as a consequence of the current macroeconomic picture, and as the stock market landscape appears to grow more uncertain, these seemingly overlooked assets might just reemerge as an attractive option for investors seeking the assurance of secure, long-term returns once more.

US 10- Year Total Returns
US 10- Year Total Returns

Source: Charlie Bilello

We're now entering the third year of a bear market in bonds, as seen in the chart above. But, conditions might be getting more favorable. There are several reasons for this, including:

  • The economy weakening in the long-term: A broad economic slowdown is likely to hit the US and Europe in 2024. (bonds have historically performed well in such situations).
  • Inflation slowing down despite the recent rebound: The ECB seems to have already reached a turning point, and the Fed has vowed to keep rates higher for longer. We will hardly see rates move much higher from here.

Macro Says Yields Go Down
Macro Says Yields Go Down

Source: Topdown Charts, Refinitiv

Stocks Vs. Bonds YoY
Stocks Vs. Bonds YoY

Source: Topdown Charts, Refinitiv

It's worth noting that there's a noticeable disconnect in both macroeconomic scenarios and relative valuations when we compare bonds to the stock market right now. Usually, such divergences tend to self-correct, at least to some extent, with time.

Now, that doesn't mean you should be in a hurry to buy 50-year duration bonds. Instead, it suggests a prudent approach of considering the extension of bond durations within your investment portfolio, particularly if you have a long-term perspective. Targeting bond durations falling within the range of 8 to 13 years could potentially align your portfolio with these evolving market dynamics.

When you look back in history, the current valuations are quite intriguing, which could make balanced portfolios quite attractive once again.

Bottom Line

Given the looming possibility of an extended phase of elevated interest rates, it's advisable for investors to review their investment strategies carefully. Bonds, traditionally regarded as a conservative option, could reestablish themselves as a symbol of dependability and stability in a global economy marked by persistent uncertainties. A fundamental principle of successful investing involves not just foreseeing market shifts but also adjusting to them.

Bonds, notwithstanding recent challenges, may once again become a cornerstone of a diversified and robust investment portfolio, offering both peace of mind and the prospect of sustained financial security over the long haul.

***

Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. As a reminder, any type of assets, is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remains with the investor. The author does not own the stocks mentioned in the analysis.

Fed Leads Investors Into Bonds Amid Stock Market Uncertainty, Higher Yields
 

Related Articles

ING Economic and Financial Analysis
Rates Spark: All About Inflation By ING Economic and Financial Analysis - Nov 30, 2023

By Benjamin Schroeder & Padhraic Garvey The rates rally found its confirmation in German and Spanish inflation data ahead of today's eurozone release, but finally seemed to...

Fed Leads Investors Into Bonds Amid Stock Market Uncertainty, Higher Yields

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email