For many investors, high-quality bonds are an important part of a diversified portfolio, acting as a dependable source of income. Further, that diversification is illustrated by their historically negative correlation with equities (-0.2 since 1997), making them particularly valuable during periods of equity market volatility. When an equity correction or bear market occurs, interest rates typically fall, boosting bond values and reducing overall portfolio volatility when investors need that extra protection the most.
While bond investors might find the recent uptick in rates and modestly negative returns unsettling, the fundamental benefits of owning bonds haven’t changed. They continue to provide an important source of income for investors, and should act as a strong counterbalance to equity risk in a diversified portfolio.
Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. You should consult a representative from PMFA for investment advice regarding your own situation. The information provided in this update is based on information believed to be reliable at the time it was issued. Any analysis non-factual in nature constitutes only current opinions, which are subject to change.