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Should you Bail on Bonds?

| April 22, 2022

Bonds are off to a rough start in 2022. The Bloomberg US Aggregate Bond Index, the proxy for core US bonds, has declined nearly 6% in the first three months of 2022. This loss is compounded by those from 2021, when the index returned -1.5% for the year[i].

Bond investors have been schooled in the simple principle that when interest rates go up, bond prices go down. Going forward, as the Fed (Federal Reserve) embarks on an aggressive path to tame inflation by raising interest rates, investors may be left wondering whether they should simply bail on bonds.

Are Bonds Losses Common?

To understand the implications of recent bond returns, it is important to gain historical context of the index. For fixed income, negative annual returns are rare. Since its inception in 1976, the Bloomberg US Aggregate Bond Index has only ended with negative return four times—in other words, less than 10% of the time. This was despite periods of both rising and falling interest rates. 

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[i] FactSet