Fed Leads Investors Into Bonds Amid Stock Market Uncertainty, Higher Yields

investing.com:

With all eyes fixated on the recent stock market decline in the aftermath of the Federal Reserve's indication that it will keep interest rates higher for longer, there's another facet of the financial landscape certainly worth investors' consideration.

Over the last few years, bonds have weathered their fair share of challenges, experiencing a notable multi-year period of lower yields, mostly on the back of net-zero interest rates in most developed economies.

However, as yields stay stubbornly high as a consequence of the current macroeconomic picture, and as the stock market landscape appears to grow more uncertain, these seemingly overlooked assets might just reemerge as an attractive option for investors seeking the assurance of secure, long-term returns once more.

Source: Charlie Bilello

We're now entering the third year of a bear market in bonds, as seen in the chart above. But, conditions might be getting more favorable. There are several reasons for this, including:

Source: Topdown Charts, Refinitiv

Source: Topdown Charts, Refinitiv

It's worth noting that there's a noticeable disconnect in both macroeconomic scenarios and relative valuations when we compare bonds to the stock market right now. Usually, such divergences tend to self-correct, at least to some extent, with time.

Now, that doesn't mean you should be in a hurry to buy 50-year duration bonds. Instead, it suggests a prudent approach of considering the extension of bond durations within your investment portfolio, particularly if you have a long-term perspective. Targeting bond durations falling within the range of 8 to 13 years could potentially align your portfolio with these evolving market dynamics.

When you look back in history, the current