A Growing Case for Bonds...

October 5, 2026

By Mike Moreland
Retired VP - Investments

 

Last month the Federal Reserve’s rate-setting arm – the Federal Open Market Committee – voted unanimously to raise the key Federal Funds rate by 0.25%.  This marked the first rate hike in over three years, and Committee members indicated at least one more increase is on the horizon this year.

This action was widely anticipated, with market participants pushing longer-term Treasury rates above 5.0% well in advance of the formal announcement.  Yields continued to drift higher into October.  Even following Fridays lower-than-expected jobs data, the entire Treasury yield curve beyond three years is above the 5.0% threshold. 

Consistency Over Crystal Ball Forecasts

With the price of older bonds now generally under their purchase cost, many are concerned that new commitments will follow this path.  The total return for most bond portfolios (income plus/minus price changes) is break-even at best thus far this year.  Is the preferred strategy to wait out this rate cycle, withholding purchases until rates have peaked?

In a perfect world, the answer is yes.  But as the old saying goes, ‘he (or she) who lives by the crystal ball learns to eat ground glass.’  The prudent action is to take advantage of the best opportunities regardless of the environment, following a consistent and conservative path to a final goal.

The New Bond Opportunity

And the opportunities today are greater than those available over the last decade-and-a-half.  For much of this period, real interest rates – your coupon income minus inflation – were negative.   Bond investors, overall, lost purchasing power.  While fixed income served the purpose of reducing the volatility of balanced portfolios, it came at a cost.

Consider how the environment has changed.  Yes, inflation is well above the Fed’s target, and markets are anticipating more rate hikes.  Still, look at where we stand today:

Investing in fixed income today provides the highest real interest rates since the end of the Great Financial Crisis over a decade ago.  Further, with inflation expected to moderate, the potential rewards to bond investors will only grow larger.

This perspective of the benefits of fixed income’s role in a balanced portfolio is explored further in our Fall Economic & Market Commentary.  Please read it and let us know what you think. And, as always arrange a meeting with your Advisor and Investment Manager to see how we can best help you achieve your financial goals.  Your success matters to us.