Is it time to buy bonds?

Is it time to buy bonds?

January 05, 2023

2023 ended one of the WORST bond markets in a generation. (We aren’t just saying that as a hyperbole).

  • Short-Term Treasuries: -4.71% (Worst since Index was formed in 1976)
  • Intermediate-Term Treasuries: -10.43 (Worst since the index was formed in 1971)
  • 10-Year Treasuries: -15.19% (Worst since the index was formed in 1971)
  • TIPS (Treasury Inflation Protection Securities): -12.02 (The worst year since 2008)
  • Corporate Bonds: -17.93 (Worst Year since index formed in 2002).

As you can see from the previously listed above, bonds were not safe in 2022. What caused this massive sell-off? The answer is the dramatic rise in interest rates. Interest rates directly influence the bond price and yields of bonds. If interest rates rise, then the price of bonds is expected to fall. This is because new issues of bonds need to keep bond yields competitive. If interest rates fall, then bond prices are expected to rise as new issues will lower their yields to keep pace with inflation.

Bonds may now represent an opportunity for many investors as we enter 2023. For the first time in a long time, investors may have a chance to get yields on bonds that provide a positive REAL rate of return. (Real rate of return=Yield-Inflation). You have a choice of picking newly issued bonds with higher rates OR buying previously issued bonds at discounts.

As always, before making any investment decisions please contact us to help determine if this strategy might make sense for you.