The first half of the year has been difficult for investors, as stocks fell, cryptocurrencies tanked, and even the supposedly less risky bond market wobbled.
That bond slump is especially bad news for conservative investors, like retirees living on a fixed income. Another group affected by poor bond performance is anyone trying to buy a house. Indeed, mortgage rates have been climbing along with bond yields. Interest rates rise as bond prices fall. This year, the benchmark 10-year US Treasury yield has more than doubled, from about 1.51% at the end of last year to 3.16% at present.
The bond yield spikes are being driven by aggressive interest-rate hikes from the US Federal Reserve. Some analysts feel the bond market is now pricing in the likelihood that the Fed's rate increases will slow inflation. That means yields could soon start to fall back.
This is good news for homeowners, too. Mortgage rates, which have been edging toward 6% for a 30-year fixed loan, could begin to recede.
Some experts feel the 10-year bond yield might reach around 3.5% later this year before starting to slide, as monetary policy catches up with inflation. Conservative investors would welcome these higher yields as they don’t have the risk appetite to take on the risks of working with assets like Bitcoin.
What does this mean for me?
Bonds have performed poorly this year, until now. The Fed’s tightening is helping yields, music to the ears of fixed-income investors seeking portfolio protection.
If you are a bond investor, now is the time to maximize on the yield uptick before central banks tame inflation and yields start to decrease.
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