The bond market is currently experiencing what Bank of America analysts have labeled as the “worst bear market ever,” with significant price declines since 2020. Some 30-year U.S. Treasuries and a 100-year maturity Austrian bond have lost half and three-quarters of their value respectively. Despite these losses, investment-grade bonds are still seen as valuable due to their higher yields and lower prices, making it an ideal time for investment through mutual funds or ETFs such as the iShares 20+ Bond Treasury E.T.F.
The ETF saw speculative bets during the recent Hamas attacks on Israel. Experts like Paul Olmsted from Morningstar and Robert Pozen from M.I.T. Sloan School of Management emphasize the role of bonds in generating steady income and providing portfolio diversification. They suggest holding individual Treasuries or investment-grade corporate bonds with five to 10 years of maturity for specific investment purposes.
The bond market’s volatility has been influenced by fluctuating interest rates driven by inflation and economic growth expectations and high duration, causing distress to many investors. Yet, long-term investment-grade bonds are considered safe holdings despite this volatility.
Core investment bond funds like the Vanguard Total Bond Market Index Fund and iShares Core U.S. Aggregate Bond E.T.F., which track the Bloomberg U.S. Aggregate Bond Index, have accumulated significant losses, with the index losing almost 15 percent in value over the past three years. Jeff Johnson from Vanguard, however, sees the higher yields (now at 5.4 percent) that led to these price drops as good news, suggesting they could eliminate losses within three years if interest rates stabilize.
Sidney Homer’s “A History of Interest Rates,” co-written with Richard Sylla, indicates that interest rates have seen countless shifts over time, leading to significant gains and losses for investors. The book suggests that it is our time to be shocked by the bond market’s behavior, but also potentially reap rewards. The long-term Treasury fund has lost more than 42 percent over the past three years. The future of bonds remains uncertain due to potential war-induced price increases and historical trends dating back to Neolithic times.
