It’s been a dismal year for bond markets, with investors facing the first global fixed income bear market in 70 years (the year-over-year nominal returns of GDP-weighted global government bonds is -20%). The last nine months of fixed income returns have wiped out profits made in the last 10 years. While inflation reaches record highs, global bond markets have declined, leading to a significant repricing of other asset classes.
There is some good news. According to a white paper from Schroders, “the future prospects of higher quality fixed income today are more favorable than they have been for some time,” with absolute yields being “at their most attractive levels in over a decade.” Case in point, yields for 2-year Treasuries have moved 20 times higher in a year.
“Higher quality fixed income screens as attractive versus higher risk asset classes,” according to Schroders. “We believe that as the economy stalls, inflation peaks, and the Federal Reserve steps back, the potential for strongly positive fixed income returns will be dizzying compared to earlier years.”
Bond markets have faced unprecedented drawdowns this year after failing to provide the ballast they’re known for. While the headwinds have been strong, there are still opportunities in the fixed income space for patient, long-term investors.
For investors looking to get bond exposure amid turbulent times, the Vanguard Total Bond Market Index Fund ETF Shares (BND ) offers an all-inclusive approach to getting core exposure. BND seeks the performance of the Bloomberg U.S. Aggregate Float Adjusted Index, which represents a broad spectrum of public, investment-grade, taxable, fixed income securities in the U.S., including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than one year.
While it holds securities of all maturity lengths, it is heavily weighted towards the short end of the curve.
“BND could make for a good choice for investors who currently have little to no bond exposure and are looking to broadly increase their holdings in the segment across a variety of sectors,” said FactSet’s analyst report on the fund.
BND carries an expense ratio of 0.03%.
For more news, information, and strategy, visit the Fixed Income Channel.