The Current Landscape of Bonds

During challenging times on the stock market, investors have been known to turn to bonds for more secure, steady returns. However, in 2022, during a historic selloff of stocks, the bond market struggled simultaneously. This uncharacteristic synergy brought the value of bonds into question, but as 2023 starts, investors are already showing signs of dipping back into the bond market with force.

For the first time since 2009, investors have packed their portfolios more heavily with bonds than other asset classes. Bonds offer investors a fixed income, typically paying out twice a year. When a bond reaches maturity, investors get back the entire principal, which makes bonds a great way to boost investment revenue without letting go of capital entirely.

Bonds upended many portfolios this year because they were unable to outperform record inflation, but one major indicator is pointing toward the resurgence of bonds. The comparison of the United States 10-Year Treasury Note to the S&P 500 indicates that bonds are undervalued when compared to stocks, offering a prime opportunity for bonds to come with a high-value proposition.

If inflation continues to decrease incrementally, paired with a decline in growth, bonds will likely outperform stocks. Of course, diversification is important for any portfolio, but the 60/40 rule was called into question last year, and this year it might just find its footing.