Bonds Have Been Awful. It’s a Good Time to Buy. (2024)

FAQs

Bonds Have Been Awful. It’s a Good Time to Buy.? ›

It's a Good Time to Buy. As interest rates rose over the past few years, bond prices plummeted, making high-quality bonds more attractive, our columnist says. Jeff Sommer writes Strategies, a weekly column on markets, finance and the economy.

Answer: Now may be the perfect time to invest in bonds. Yields are at levels you could only dream of 15 years ago, so you'd be locking in substantial, regular income. And, of course, bonds act as a diversifier to your stock portfolio.

Owing to several factors, including discomfort with equities after the 2008 global financial crisis and the graying of America, bonds have become more popular than stocks. As a result, their yields have declined, making them significantly less attractive than equities.

As inflation finally seems to be coming under control, and growth is slowing as the global economy feels the full impact of higher interest rates, 2024 could be a compelling year for bonds.

Bonds could return as much as stocks, with far less volatility. Note: The projections use the MSCI U.S. Broad Market Index as a proxy for stocks and the Bloomberg U.S. Aggregate Index as a proxy for bonds. Source: Vanguard Capital Markets Model projections, as of December 31, 2023.

Over the past 40 years, bonds have averaged a 6.4% annual return—about 1.5 times the 4.1% return of cash. Bonds have also been consistent outperformers: In the 433 months from January 1986 to April 2022, bonds had a better 5-year return in all but 10 periods—a 98% success rate (Exhibit 4).

If you want to keep all your good interest and get the most out of your I Bonds you should cash out: after earning 3 months of lower interest and. just after the 1^st of the month.

What causes bond prices to fall? Bond prices move in inverse fashion to interest rates, reflecting an important bond investing consideration known as interest rate risk. If bond yields decline, the value of bonds already on the market move higher. If bond yields rise, existing bonds lose value.

There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall.

Should I buy bonds when interest rates are high? ›

The answer is both yes and no, depending on why you're investing. Investing in bonds when interest rates have peaked can yield higher returns. However, rising interest rates reward bond investors who reinvest their principal over time. It's hard to time the bond market.

In April 2024, the stock market is going wild, swirling around fresh all-time highs, 20% above year-ago levels. Meanwhile, the yield on 10-year Treasury bonds remains above 4%, so the bond market, too, looks awfully attractive to investors.

Aliaga-Diaz says, "Our bond return expectations have increased substantially. We now expect U.S. bonds to return a nominal annualized 4.8% to 5.8% over the next decade, compared with the 1.5% to 2.5% we expected before the rate-hiking cycle began.

Bonds are often touted as less risky than stocks—and for the most part, they are—but that does not mean you cannot lose money owning bonds. Bond prices decline when interest rates rise, when the issuer experiences a negative credit event, or as market liquidity dries up.

Potential for Increased Value. As investors seek safer assets during a recession, the demand for bonds typically increases. This increased demand can drive up the price of existing bonds, especially those with higher interest rates compared to new bonds being issued.

What to consider now. We suggest investors consider high-quality, intermediate- or long-term bond investments rather than sitting in cash or other short-term bond investments. With the Fed likely to cut rates soon, we don't want investors caught off guard when the yields on short-term investments likely decline as well ...

Should I only buy bonds when interest rates are high? There are advantages to purchasing bonds after interest rates have risen. Along with generating a larger income stream, such bonds may be subject to less interest rate risk, as there may be a reduced chance of rates moving significantly higher from current levels.

Investing in bonds when interest rates have peaked can yield higher returns. However, rising interest rates reward bond investors who reinvest their principal over time. It's hard to time the bond market. If your goal for investing in bonds is to reduce portfolio risk and volatility, it's best not to wait.

Series I bonds will pay 4.28% annual interest from May 1 through October 2024, the U.S. Department of the Treasury announced Tuesday. Linked to inflation, the latest I bond rate is down from the 5.27% annual rate offered since November and slightly lower than the 4.3% from May 2023.