The Great Bond Party of 2019 is Ending

“‘Free’ makes people do silly things,” says Mr. Cordaro. “You would be better off paying $5 to trade and have a better sweep account.” Fidelity and Vanguard continue to use money-market mutual funds, with higher yields than bank accounts, as the default for their investors.

For longer-term bonds, investors may need to accept that they need to emphasize either safety or income. But no single type of bond is likely to excel at both.

While Treasury yields are meager, Treasury bonds are the best ballast when stocks are falling, and that is worth remembering, more than 10 years after the start of a stock bull market.

Mr. Pyle of BlackRock noted that with low concern for a sharp pickup in inflation, prices for Treasury Inflation Protected Securities have not been bid up as much as those for regular Treasuries. That makes 2020 a “good entry point” to build in some long-term protection to rising prices. Morningstar, the fund research firm, recommends Vanguard Short-Term Inflation-Protected Securities and Schwab U.S. TIPS.

For income seekers willing to take on more risk, Mr. Pyle said, high-yield bonds are a reasonable way to generate more income, if you accept BlackRock’s outlook for moderate growth, without a recession, in the United States this year.

For example, the Vanguard High-Yield Corporate fund had a current yield of 4.2 percent in December, compared with 1.7 percent for the Vanguard Intermediate Treasury fund. BlackRock also recommends emerging-market bonds, which it says could do well at a time when the global economic outlook is solidifying. The TCW Emerging Markets Income fund has a 5 percent current yield.

But high yield is often called “junk,” because it comes with a risk. When stocks are falling, bonds that pay higher yields tend to experience sharp price declines that lead to negative total returns. During the last bear market, the Vanguard High-Yield Corporate fund lost 24 percent. TCW Emerging Markets Income lost 10 percent. Vanguard Intermediate Term Treasury delivered the ballast, gaining nearly 17 percent.

Article source: https://www.nytimes.com/2020/01/17/business/bond-market-investments.html?emc=rss&partner=rss