How Investors Can Cope With Bond Market Downturns

Look at it this way. The Federal Reserve has already told us that it expects the fed funds rate to exceed 2.25 percent within a year or two. Thus, the two-year Treasury yield has more than tripled since Dec. 31, rising to about 2.45 percent from 0.73 percent. Because prices move in the opposite direction to interest rates, the value of Treasury bills has plummeted.

I keep hearing about “investments” in the bond market. What is all that about?

While the Fed has intervened extensively throughout the bond market, it has less influence over longer-dated bonds, those of, say, five, 10, or 30 years. Their yields have not risen as rapidly as those of shorter-dated stocks. In fact, some short-term rates have already surpassed those on longer-term bonds. When that happens, as the jargon goes, there is a “yield curve inversion.”

The inversions suggest that traders doubt the Fed can keep raising interest rates because the economic impact will be too severe.

Yield curve inversions sometimes, but not always, predict recessions. The signs so far are mixed, said Richard Bernstein, a former chief investment strategist at Merrill Lynch who now runs his own firm, Richard Bernstein Advisors.

“The Fed has a lot of options that it can choose from before we face a recession,” he said, adding that he doesn’t expect a recession anytime soon, but believes inflation will remain fairly high. Bernstein therefore suggests that, in addition to bonds, investors should hold assets that “tend to thrive in high-inflation environments, such as commodities, real estate, or certain types of stocks, such as in the energy, materials, and energy sectors.” or defense. .”

I own Treasury bonds directly, not through mutual funds or ETFs. Have I lost money?

No, unless you sell the bonds, you won’t lose a dime.

The US government backs all Treasuries. In crisis, investors from all over the planet buy them for that reason.

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