Bond market: beware of bears


This article originally appeared on The Humble Dollar.

THE BOND MARKET has had an eventful year. Interest rates, which move in the opposite direction to bond prices, soared in early 2021 in hopes of an economic reopening. Cash yield, which started the year below 1%, jumped above 1.75% in March, before slumping in the second quarter and the first weeks of the third quarter.

Today, buyers of 10-year Treasuries can earn just over 1.5%, much less than the. Those with large bond holdings might fear such a negative real return. Unfortunately, if we want higher interest rates, there isn’t much we can do except increase the risk in our portfolio.

Things are not getting better abroad. Bank of America notes that high-quality global corporate fixed-income securities are set to lose 4% this year, taking into account both interest earned and falling bond prices. Meanwhile, global government bonds are on track for their worst year since 1949.

The funny thing about all these stats since the start of the year is that the starting point makes all the difference. Bond yields are generally positive over the past six months. Vanguard Long-Term Treasury Index Fund ETF Shares (NASDAQ 🙂 (VGLT) returned 6%. Even Vanguard Emerging Markets Government Bond Index Fund ETF Shares (NASDAQ 🙂 (VWOB) posted a gain of 0.9%. Shifting the period analyzed changes the story.

Now is the time of year when next year’s forecasts are pouring in from Wall Street economists and market analysts. Like clockwork, economists will likely forecast higher interest rates in 2022. These “expert” predictions could make you even more cautious about holding bonds. But consider this graphic: “The fall in bonds has been a constant for decades, and horribly bad for decades,” as researcher Jim Bianco said last Friday.

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