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Bond Performance Update

In previous bond performance articles, we have discussed the two broad types of risk that impact the prices of bonds, interest rate risk and credit risk. We have consistently urged investors to “stay the course” with respect to their bond positions, assuming that bonds are a component of the target asset allocation within their Investment Policy Statement.

Despite warnings throughout the past several years to avoid bonds due to the potential for rising interest rates, bonds mostly managed to hold their value during 2016. The Federal Reserve’s interest rate increase in late 2016 (to 0.75%, from 0.5%) had minimal impact on bond prices, indicating that the increase in rates was already priced into fixed income securities. Bond asset class total returns for 2016 were:

Barclays US Aggregate Bond Index

Barclays US Corporate 1-5 Year Index

Barclays US Corporate 5-10 Year Index

Barclays US Treasury Inflation Protected Bond Index

S&P Municipal Bond New York Index

+2.65%

+2.87%

+5.60%

+4.68%

+0.56%

Bond yields have generally held level or even decreased so far during 2017 (again, despite warnings by analysts), as shown by the below year-to-date total returns through 05/30/2017:

Barclays US Aggregate Bond Index

Barclays US Corporate 1-5 Year Index

Barclays US Corporate 5-10 Year Index

Barclays US Treasury Inflation Protected Bond Index

S&P Municipal Bond New York Index

+2.27%

+1.86%

+3.66%

+1.69%

+5.62%

Bonds provide investors with the important feature of relatively low volatility (compared to riskier assets such as stocks and commodities), combined with predictable income streams. If and when bonds suffer another negative period, we urge you to consider why you hold bonds, and caution you against abandoning ship when the tides look rough. Bonds have historically provided an excellent diversifier to equity positions.


Dan_BDaniel Bauer, CFP® serves as the Chief Investment Officer of AllSquare Wealth Management, LLC. In this capacity, his responsibilities include developing, implementing, and monitoring investment portfolios for customers of the firm.

 

AAllSquare Wealth Management is a Federally Registered Investment Advisory Firm.
AllSquare Wealth Management, LLC is a registered investment adviser.

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