Push-Pull of Latest Fed Comments Not Affecting Bonds Much


The US Federal Reserve, according to its latest minutes, appears to be considering further rate hikes. That’s what capital markets expected, which could explain why bonds haven’t continued to sell as quickly as they have for much of 2022.

“Most participants felt that increases of 50 basis points in the target range would likely be appropriate at the next two meetings,” the minutes read. said. In addition, members of the Federal Open Market Committee advised that “a restrictive policy stance may well become appropriate depending on how the economic outlook changes and the risks to the outlook.”

Bonds, for the most part, have trailed stocks lower for much of 2022 amid inflation fears. No one knows if the worst is over or not, but the stage could be set for buying value in a struggling bond market.

“It’s a little early to know how deep this hole will get,” Eric Jacobson wrote in the morning star. “There is too much quicksand in the global economy at the moment. We are, however, seeing an emerging trend among bond managers to believe that some previously rich sectors are becoming attractive again, even if their valuations relative to Treasuries have not changed. not necessarily moved much.

Filling a bond portfolio

One of the main drivers of bonds as an attractive investment will be whether or not a recession occurs. As a safe-haven asset, bonds could help flesh out a portfolio in times of crisis, such as a recession.

Whether or not the Fed can do enough to stave off a recession with its tightening remains to be seen. Too much could upend growth, wage inflation and corporate earnings not being able to keep up with inflation or rising interest rates.

“Monitoring the true extent of recession risk and determining whether the Fed is pricing it correctly will be key to a number of asset allocation decisions in the months ahead,” he added. said Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International.

Bond exposure in 1 fund

Rather than holding multiple bond positions, exchange-traded funds (ETFs) can do it all in one position. One ETF to consider is the Vanguard Total Bond Market Index Fund ETF Equity (BND).

BND presents bond investors with a global, global solution to gain exposure to US bonds. It is an ideal solution for investors looking to supplement their equity exposure.

BND seeks the performance of the Bloomberg Barclays US Aggregate Float Adjusted Index. The Bloomberg Barclays US Aggregate Float Adjusted Index represents a broad range of public, investment-grade, taxable US fixed-income securities, including dollar-denominated government, corporate and international bonds, as well as mortgage and asset-backed securities. backed securities, all with maturities greater than 1 year.

For more news, insights and strategy, visit the Fixed income channel.


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