Bonds could be re-claiming their safe haven status again after following stocks downward for the first half of 2022. Now, with a potential recession looming, bonds could come back in favor with investors at attractive values.
“Investors should look to bonds for income and as a hedge to equities again after fixed-income assets suffered a ‘horror show’ first half, Vanguard Group Inc. said,” according to a Bloomberg report.
The U.S. Federal Reserve will get continued focus with respect to interest rate policy. Forecasts for rate hikes are getting figures as large as one full point, which only feeds the recession narrative further.
“The more the Fed is set to deliver on further significant hikes and slow the economy sharply, the more likely it is that the price of inflation control is recession,” Goldman Sachs economists said in a client note. “The persistence of CPI inflation surprises clearly increases those risks, because it worsens the trade-off between growth and inflation, so it makes sense that the market has worried more about a Fed-induced recession on the back of higher core inflation prints.”
2 Ways to Get Total Bond Exposure
With a vast array of bonds to choose from in the debt market universe, it can be as simple as getting a diversified bond portfolio in one exchange traded fund (ETF). That’s exactly what the Vanguard Total Bond Market Index Fund ETF Shares (BND) can accomplish.
BND seeks the performance of the Bloomberg U.S. Aggregate Float Adjusted Index, which represents a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States, including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than one year.
Bond investors can use BND as a traditional hedging component when the equities market goes awry, should a recession hit. Short-term traders can also use the ETF given its dynamic ability to be bought and sold quickly in the open market.
For a diversified approach with international bonds, investors can opt for the Vanguard Total International Bond Index Fund ETF Shares (BNDX), which seeks to track the performance of a benchmark index that measures the investment return of non-U.S. dollar-denominated investment-grade bonds. International bonds can provide a diversification tool for fixed income investors looking to supplement their current core portfolio.
The ETF employs an indexing investment approach designed to track the performance of the Bloomberg Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged), which provides a broad-based measure of the global, investment-grade, fixed-rate debt markets.
For more news, information, and strategy, visit the Fixed Income Channel.