In a year where stocks are climbing, bonds have been the biggest loser.
So far this year, bond returns have been about 8% lower than stocks.
The main culprits have been interest rates, which are now about 3% lower in real terms than they were in 2010.
And we’ve already seen the effects of this on bond yields.
Bonds that have been in the market for a long time have generally outperformed bonds that haven’t.
The fact that we’re seeing so many bond yields drop suggests that investors are starting to realize that this market is not as strong as it once was.
So if we look at the bond market over the last year, it is clearly a weaker investment than it was when we first began covering the market in 2015.
In terms of the most recent bond yield, it has fallen from about 9% in 2015 to about 6% in 2017.
While we’ve seen a lot of interest rate and bond market fluctuations in the last several years, this year seems to be unique in that the yield on the 10-year Treasury is also falling.
So while there has been a lot going on in the bond markets, the yield has fallen to a point that the bond is actually below its value.
That’s a pretty big reversal, and it’s really worrying.
What should investors do now?
If you’re holding a 10-month Treasury or a 10 year bond, we recommend holding both at the same time.
You can keep both in your portfolio, but you’ll want to use the smaller 10- year bonds to invest for longer.
For the other types of bonds, we suggest that you sell both at once and take the smaller one and the 10 year as your “safe haven” bond.
That way, you can buy the bigger bond and cash out the smaller when the market drops.