The worst may almost be over for bonds. That's good news for conservative investors
Powell: Recession after rate hikes certainly a possibilityReplayMore Videos ... (15 Videos)Powell: Recession after rate hikes certainly a possibilityShrinking UK economy could lead to a recession amid 40-year high inflationWarren to Powell: Don't drive this economy off a cliffAnalyst: Gas tax holiday 'won't change people's behavior'Beyoncé's single dubbed anthem for 'Great Resignation'Gary Cohn: Fed was late on interest rate hikesHow raising rates could threaten demand and productionExecutives torn on recession risk as fears grow for global economyThe Fed anticipates more rate increases after announcing biggest hike in 28 yearsWhat the interest rate hike means for youRealtor.com chief economist shares her advice for homebuyers and sellersHe predicted US inflation would rise. Hear what he thinks about a recessionHere's what the US economy can expect if a recession hits Former labor secretary on how Biden administration can combat inflationHow this mom is using coupons to combat inflation New York (CNN Business)The first half of the year was lousy for investors as stocks sank, cryptocurrencies crashed and even the supposedly less risky bond market performed poorly.
That bond slump is bad news for conservative investors, retirees living on a fixed income and anyone trying to buy a house. But the worst may be just about over.Mortgage rates have been spiking along with bond yields, because rates rise as bond prices fall. And bonds have plummeted this year: The benchmark 10-year US Treasury yield has more than doubled in 2022, from about 1.51% at the end of last year to 3.16% currently.The main reason for the bond yield spike: Aggressive interest rate hikes from the Federal Reserve and expectations of more to come. But now, experts think the bond market could be pricing in the likelihood that the Fed's rate increases will slow inflation. That means yields could soon start to slide back.Consumers are feeling even worse about the US economy thanks to inflationIt also means that mortgage rates, which have inched close to 6% for a 30-year fixed loan, may pull back — especially if the Fed doesn't have to keep hiking rates as dramatically. Read More"It's been painful in fixed income because bonds have not provided the portfolio protection that is valued by investors," said Chip Hughey, managing director of fixed income at Truist Advisory Services."But there is the perception that the Federal Reserve may have had to overtighten," Hughey added. "That tug of war could put downward pressure on yields."Bond market doing Powell's job for him?Lately anyone owning bonds, or fixed income exchange-traded funds that track Treasuries, has been hurt — and the idea of Treasuries as a safe haven has been turned on its head. But the good news about the bond yield spike is that fixed-income investors may already be doing a lot of the dirty work for Fed chair Jerome Powell, experts say."Interestingly, the bond market sniffed out trouble and has done the Fed's bidding driving bond prices down and yields up," Nancy Tengler, chief investment officer and CEO of Laffer Tengler Investments, said in a report Monday.Others point out that inflation, which hit a year-over-year rate of 8.6% through May according to the most recent consumer price index report, is probably close to finally peaking. That should push bond yields lower as well. "We're past the peak inflation panic after the last CPI report. Investors can feel safer in bonds now. We're close to capitulation," said Matt Smith, an investment director at Ruffer.To be sure, yields could still climb a bit further before they finally take a meaningful downturn. But the worst is probably over. Experts are forecasting a more gradual increase from current levels, not another doubling."The majority of the damage in the bond market may be done," said Steve Wyett, chief investment strategist with BOK Financial. Wyett thinks the 10-year yield might top out at around 3.5% later this year before starting to slide as inflation numbers head "quite a bit lower" by the fourth quarter.That would be music to the ears of investors who own bonds because they don't want to take on the risks associated with meme stocks, bitcoin and other more speculative assets. "It's hard to say when we'll have a sharp turnaround. The performance this year has been pretty bad," said Henry Song, portfolio manager with Diamond Hill. "But it's a much more attractive entry point for bonds now, even if it's not the bottom. There is a lot of upside potential."Click Here To Get Funded!