Despite Market Fears, the Worst Might Be Over for Bonds

Of course, when it comes to the markets, psychological factors can play into investors’ decisions. Hence, the advent of behavioral finance as an academic area of study.

For much of 2022 thus far, investors have been putting downward pressure on the market with the fear of rising rates, which can erode bond income with respect to the debt market. Right now, the CNN Fear and Greed Index is in the “Extreme Fear” zone.

“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.”

However, the worst could be over, and investors could be returning to the bond markets again with gusto. That said, there are opportunities where investors can find value.

With a vast array of bonds to choose from in the debt market universe, it can be as simple as getting a diversified bond portfolio in one exchange traded fund (ETF). That’s exactly what the Vanguard Total Bond Market Index Fund ETF Shares (BND A) can accomplish.

BND seeks the performance of the Bloomberg U.S. Aggregate Float Adjusted Index, which represents a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States, including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than one year.

As mentioned, bond investors can use BND as a traditional hedging component when the equities market goes awry. Short-term traders can also use the ETF given its dynamic ability to be bought and sold quickly in the open market.

For more news, information, and strategy, visit the Fixed Income Channel.