Fixed-Income Investing is Beginning to Make Sense Again
The historic bond selloff of 2022 may be reaching its end. Fixed-Income may be returning to its role as an effective diversification tool
The first half of 2022 will be remembered as the time that diversification using a bond allocation ceased to work. Typically, if the equities in your portfolio are suffering a 15% selloff like we have seen so far this year, the bonds in your portfolio would have held up much better, resulting in a portfolio return of more like minus 6% - 8% if you are equally allocated between stocks and bonds. The bad news is that so far in 2022 your intermediate to long bond indexes are down 11% -15% so far, meaning that your 50–50 portfolio is down about as much as an all-equity portfolio. You can see below the historic move upward in yields on the 10-year Treasury benchmark, from under 1.5% last December to approximately 3.5% recently.
The good news is that yields appear to have topped out at least for the moment. We are seeing signs that inflation may be about to recede. These signs include falling commodity prices:
