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Despite low rates, rising inflation fears and tight credit spreads, bonds still play an important role in investors’ portfolios. Certain types of fixed-income instruments are actually designed to protect against inflation. Read about the reasons for continuing to invest in fixed income in the latest Markets in a Minute.
Markets in a Minute: Bonds
With interest rates at historic lows, inflation fears rising and credit spreads tight, it’s shaping up to be a potentially challenging time for fixed-income investors, leading some to wonder whether it still makes sense to own bonds. Amid such challenges, it’s worth reflecting on the important role bonds play in portfolios.
While not immutable, the correlation between stocks and bonds has been negative for the past two decades. This inverse relationship has helped buffer portfolios during historic equity-market downturns:
An allocation to bonds can still provide investors with dependable income, just not at the same levels that previous generations enjoyed. To be sure, this isn’t your father’s bond market:
With inflation worries rising, central banks around the world (from Norway to Brazil) are responding by tightening monetary policy and signaling more tightening to come:
Like the Fed, we continue to believe that inflation will ease as supply-chain disruptions abate. That said, there are certain types of fixed-income instruments designed to protect investors against inflation, and they’re attracting plenty of attention:
Given the headwinds facing the fixed-income market, buying bonds can feel akin to receiving a pair of socks as a holiday gift. Yet, just like socks help keep you warm and dry during frosty weather, bonds can help smooth out the highs and lows of a portfolio, along with adding to returns over time and offering some income.
The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Advisor Services Holdings C, Inc., d/b/a Kestra Holdings, and its subsidiaries, including, but not limited to, Kestra Advisory Services, LLC, Kestra Private Wealth Services, LLC, Kestra Investment Services, LLC, Kestra Investment Management, LLC, Bluespring Wealth Partners, LLC, and Grove Point Financial, LLC. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by any entity for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was created to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation. Kestra Advisor Services Holdings C, Inc., d/b/a Kestra Holdings, and its subsidiaries, including, but not limited to, Kestra Advisory Services, LLC, Kestra Private Wealth Services, LLC, Kestra Investment Services, LLC, Kestra Investment Management, LLC, Bluespring Wealth Partners, LLC, and Grove Point Financial, LLC does not offer tax or legal advice.