Announcer:
4 Your Money is brought to you by NelsonCorp Wealth Management.
Brandy Auterson-Hurst:
It’s now time for 4 Your Money. We’re joined by Nate Kreinbrink, financial planner at NelsonCorp Wealth Management. Welcome back, Nate.
Nate Kreinbrink:
Thanks again for having me, Brandy.
Brandy Auterson-Hurst:
So bonds have had a rough start to the decade. What has been happening in the bond market?
Nate Kreinbrink:
Well, I think it’s safe to say that bonds have had one of their more difficult periods in history over the past several years. I brought along a chart here today that kind of shows this. So what we’re looking at here is the Bloomberg U.S. aggregate bond index, which is widely considered the benchmark for the U.S. bond market.
So, if you look at the lower portion of this chart, that red area there shows the drawdowns or how far bonds have actually fallen from their previous peaks. So what stands out here is the length of this current drawdown, which you can see in the bottom right-hand corner there. So this bond market that we’re currently in has been below its prior high for about 67 months now. Now, this makes it by far one of these largest drawdowns that are on record in the US bond market.
Now, the main reason for this is that interest rates have rose dramatically starting back in 2021. And when rates rise, bond prices typically fall. Now, the good news is that the worst of this decline appears to be behind us. So as you can see again on that far right corner, the bond index has actually been steadily climbing back towards its previous highs. And in fact, the bond is now very close to fully recovering from that historic drawdown.
Brandy Auterson-Hurst:
Okay. So what does that mean for investors going forward?
Nate Kreinbrink:
Well, one important thing to remember about bonds is that starting yields tend to be the biggest driver of long-term returns. So with bond yields now roughly at around 4%, this becomes a reasonable baseline for long-term returns going forward. So although the last few years have been difficult, the outlook for bonds going forward is actually improving.
Brandy Auterson-Hurst:
All right, Nate. Thanks for joining us today.
Past performance is no guarantee of future results. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal.
Indices mentioned are unmanaged and cannot be invested into directly.
This video includes a paid appearance.