Stock returns get all the headlines, and with US equities entering their first bear market since 2008, there is good reason for that. However, fixed income may account for a significant portion, or even a majority, of many investors’ portfolios, making bond returns just as important for those investors.
While we believe stock returns can offer similar upside to their history and that the current decline in prices will ultimately prove to be an opportunity, the same may not be true for fixed income.
As the LPL Chart of the Day shows, future long-term returns of bonds have been primarily determined by the starting yield. In other words, the coupon may be the most significant factor in your total return over the long term. Through Wednesday’s close, the Bloomberg Barclays US Aggregate Bond Index returned 4.8% year to date, following last year’s nearly 9% return. But because yields fall as bond prices rise, the yield on the benchmark bond index recently hit its lowest level ever, implying that total returns over the next 10-year period could be less than 2% annualized for fixed income based on that particular bond benchmark.
“Bonds have once again proven themselves a reliable ballast to equity market volatility,” said LPL Financial Senior Market Strategist Ryan Detrick. “However, investors may be underappreciating what the recent decline in yields means for the future of fixed income returns and an already tough search for yield.”
For more information on all our views, including why we currently rate equities “overweight” and fixed income “underweight” please view our latest Global Portfolio Strategy.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This Research material was prepared by LPL Financial, LLC.
Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).
Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.
- Not Insured by FDIC/NCUA or Any Other Government Agency
- Not Bank/Credit Union Guaranteed
- Not Bank/Credit Union Deposits or Obligations
- May Lose Value
For Public Use – Tracking 1-983299