AFTER YEARS OF enduring ultra-low interest rates, fixed-income investors are starting to see bonds that offer decent yields. But amid increasing uncertainty about the strength of the U.S. economy, be careful. Not all types of bonds will protect you from turmoil in the stock market.
After raising short-term interest rates four times in 2018, the Federal Reserve has indicated it expects no new Fed funds rate hikes this year.
That means bond payouts, which have been improving for several years, aren’t likely to get any more generous in 2019. At the same time, bond prices, which move in the opposite direction of yields, could avoid potential declines. Vanguard Total Bond Market Index Fund has posted a total return—a figure that includes both price appreciation and interest income—of 4.1% over the past year.
The upshot: There are still plenty of bargains to be had in the bond market if you know where to look— and which risks are worth taking.
HIGH YIELD MEANS HIGH RISK, HIGH REWARD
When the Fed halted interest-rate hikes, it signaled that controlling inflation—which has been sitting near the 2% mark for some time—had given way to a bigger priority: boosting the economy’s growth rate. As a result, stocks jumped—and so did high-yield, or junk, bonds.
That’s because as with stocks, the financial health of issuing companies is a top concern. In a healthy econo