Why Bonds Aren’t Boring Right Now
- 7 years ago
Why Bonds Aren’t Boring Right Now
The dilemma now is that despite a rocky bond market over the last month, bond prices are still so high —
and their yields so low — that bonds simply can’t provide much buffering.
While stocks typically have a higher return potential, bonds are generally less risky
and provide a hedge against a stock market plunge, as they did during the bear market that started in 2007.
The prospect of Mr. Taylor as Fed chairman has produced a spate of comments like this one, issued by Capital
Economics on Wednesday: “ There is clearly a risk of a more hawkish Fed under Taylor’s leadership.”
Then, there are the bond market ripples caused by potential shifts in fiscal policy, including changes in the tax code.
As I wrote in a column this summer, standard practice after a big run-up in stocks
is to rebalance — meaning, to take profits out of stocks and put them into bonds.
That would be negligible for the broad stock market but it’s a lot for bonds and it could presage further difficulties ahead.
The dilemma now is that despite a rocky bond market over the last month, bond prices are still so high —
and their yields so low — that bonds simply can’t provide much buffering.
While stocks typically have a higher return potential, bonds are generally less risky
and provide a hedge against a stock market plunge, as they did during the bear market that started in 2007.
The prospect of Mr. Taylor as Fed chairman has produced a spate of comments like this one, issued by Capital
Economics on Wednesday: “ There is clearly a risk of a more hawkish Fed under Taylor’s leadership.”
Then, there are the bond market ripples caused by potential shifts in fiscal policy, including changes in the tax code.
As I wrote in a column this summer, standard practice after a big run-up in stocks
is to rebalance — meaning, to take profits out of stocks and put them into bonds.
That would be negligible for the broad stock market but it’s a lot for bonds and it could presage further difficulties ahead.