Rising interest rates have been putting downward selling pressure on bonds, but that could be presenting bargain-hunting investors with a buying option at a value-filled price point. Investment firm T. Rowe Price Group Inc. says that bonds are at their “most attractive point” in years, according to a Yahoo! Finance article.
As noted, rising interest rates have been applying too much rate risk for bond investors even with the rising yields. But bonds may have plummeted to a point where there’s too much value to ignore.
“Bond yields will continue rising over the medium term to reach levels offering attractive income opportunities for investors who understand how to manage duration, or the sensitivity of a bond’s price to changes in interest rates, said Arif Husain, head of international fixed income and chief investment officer,” the Yahoo! Finance report said.
Furthermore, recession fears could be adding to an influx of more capital into bonds as investors accumulate safe haven assets amid the uncertainty in the markets. Bonds have been following stocks downward for much of 2022, but it could be bonds providing more value moving forward.
“Debt prices have plummetted this year as the Federal Reserve carries out a regime of rate increases to stem the hottest inflation in decades,” the report added. “The Fed on Wednesday announced a 75-basis-point increase in overnight lending rates, the third time it’s raised rates in 2022.”
Getting Broad, Diverse Bond Exposure
Investors ready to get bond exposure again can consider exchange traded funds (ETFs) that offer broad, diversified exposure. One such fund from Vanguard to consider is the Vanguard Total Bond Market Index Fund ETF Shares (BND).
BND seeks the performance of 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.
As mentioned, bond investors can use BND as a traditional hedging component when the equities market goes awry. Short-term traders can also use the ETF given its dynamic ability to be bought and sold quickly in the open market.
For more news, information, and strategy, visit the Fixed Income Channel.