Bonds Getting Attention from Investors Expecting a Recession

US bond yields are at their highest level in years. With the US Fed aggressively raising interest rates in the face of surging inflation, cash is flowing back into bonds as investors seek insurance from a possible recession.

This flight toward bonds is pulling the stock market down with it. In April, the S&P 500 had its worst month since the beginning of COVID. Investors pulled $27 billion from the largest exchange-traded funds focused on equities while at the same time sinking $6 billion into government bonds.

Fixed income instruments, like bonds, have not had regular attention from investors; but with yields being so high, investors are interested. The rate on the two-year treasury note hit nearly 2.8% in late April.  Contrast this with a year ago, when the Fed was still flooding the markets with cash, and bonds were as low as 0.10%. Since then, there has been a strong repricing in bonds. The fact that investors are going back into these fixed income instruments shows that there is doubt the Fed can avoid triggering a recession.

What does this mean for me? 

As a bonds investor, you will know that these instruments are a safe haven for when a recession is on the way, or when there is too much volatility in other instruments. There is increased fear in the markets that a recession is around the corner. You should be watching this space closely as central banks have struggled in vain to tame inflation for the better part of a year.