Distance Yourself From the Fed

BONDS behave in mysterious ways. Hence you might be curious why, after the Federal Reserve cut its key interest rate for the second time in as many months, Treasury yields did not fall but instead took off. Even the short-term T-note yields surged in the wake of the October 29 rate announcement. In two days, bond funds lost substantial net asset value; iShares 20+ Year Treasury Bond coughed up 1.5%, equivalent to a 750-point drop in the Dow Jones industrial average.

- BY JEFFREY R. KOSNETT

This reversal of what had been a bullish run for bonds is owed to comments by Fed chairman Jerome Powell that more Fed cuts are not definite, plus his sense that inflation is not declining and instead seems to be edging higher. Powell’s words and the traders’ reactions, plus the inflation picture, strengthen my conviction that intermediate- and long-term bond yields are headed higher into 2026. Consequently, it is unwise to depend on broad-based total-market and core-style bond funds.