Outlook 2021: Bond Prices

Michael Gouldin |

The 10-year Treasury yield has climbed higher since the New Year, which means that some bond prices are dropping. You may have seen the headlines that say, “10-Year Yields Over 1%.”

For some, the first time they experience a change in bond prices is when they open their monthly statement and review their investments.

But before you check your January statement, here is some background that may help put the most recent move in rates in perspective.

The interest rate on the 10-year Treasury dropped steadily in the first half of 2020 and bottomed at 0.54% in late July. While rates remain at historic low levels, the yield on the 10-Year Treasury has doubled in the past six months. That’s a significant increase in a relatively short period of time. The recent rally that pushed the yield over 1% has drawn the most attention.1

Why are rates going higher? Even with the Federal Reserve holding short-term rates near zero, yields on longer-term bonds can move higher as the economy begins to improve and inflation expectations rise.2

Will bond yields keep going higher? A lot may depend on the path of the virus, vaccine distribution, and what’s next with additional stimulus money.3

Bonds can play an important part in any portfolio, but like any investment, periods of volatility are expected. If you’re concerned about the outlook for bonds, or the macro-economic trends behind the bond market’s rally, please give us a call. We’d welcome the chance to hear your perspective, and hopefully, we can provide some guidance. 

The market value of a bond will fluctuate with changes in interest rates. As rates rise, the value of existing bonds typically falls. If an investor sells a bond before maturity, it may be worth more or less than the initial purchase price. By holding a bond to maturity, an investor will receive the interest payments due plus your original principal, barring default by the issuer. Investments seeking to achieve higher yields also involve a higher degree of risk.

Asset allocation and diversification are approaches to help manage investment risk. Asset allocation and diversification do not guarantee against investment loss.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations

1. Finance.Yahoo.com, January 18, 2021

2. CNBC.com, January 12, 2021

3. CNBC.com, January 7, 2021