No Time to Be a Bond Hero

THE words bond and crater rarely occupy the same sentence, but they have before and can again.

- JEFFREY R. KOSNETT

So, although I do not aim to exaggerate, it is timely to eyeball the risk within your fixed-income allocation. Exploding oil prices and pressure on the Federal Reserve to keep interest rates steady, or even tighten credit, have turned bullish bond-market sentiment upside down.

Since the U.S. attack on Iran, the yield on a 10-year Treasury bond has climbed from 3.96% to 4.35% in early April, and three-year T-notes are up from 3.39% to 3.88%, erasing winter’s gains. The damage to bond prices and the net asset values of mutual funds and exchange-traded funds does not yet approach April 2025's debacle, when the markets protested the “Liberation Day” tariff threats by jacking long-term Treasury yields half a percentage point in five days. But the current situation could worsen as the indefinite term of the war, the continuing inflationary oil crisis and inscrutable messaging from the Trump administration make it unlikely that the Treasury or the Fed can quickly reverse the recent 2% or so losses, let alone stop them from mounting.