The potential for yet another rally in bond prices is one which some analysts are now saying is inevitable, despite interest rates remaining near historical lows and global central banks indicating additional rate hikes are on the horizon. The question of precisely when, and how, such a rebound would come about are concerning for investors in general, as the implication is that the current bull market may be coming to an end in the near future.
The fixed income sector as a whole tends to perform very well in a period of time in which rates decline, equities decline due to increased concerns about risk and cash flows stemming from macroeconomic issues, or both; in fact, during most recessions, a combination of declining interest rates and valuation reductions for equities result in a boom for bonds and other fixed income securities due to the relatively safe nature of these asset classes.
Some fixed income securities perform better than others in a bear market, with many corporate bonds also decreasing in value should the underlying business supporting the bond become distressed. Picking a diversified fixed income portfolio as well as adding in a few alternative investments is one way investors can protect against the potential downside in equities while benefiting from a potential bull market in bonds.
Determining precisely when the market will turn remains the challenge for most investors, however with many fixed income prices currently much lower than historical averages, now is as good a time as any to look at a few long-date fixed income options.
Invest wisely, my friends.
