Recent Stock Sell-Offs Could Be Bringing Investors Back to Bonds

Whipsawing stock market indexes could be pushing investors back into bonds. Both stocks and bonds have been having a rough year, but the latter asset may be showing signs of reasserting itself as a safe haven.

“The move in bonds comes as the S&P 500 came under pressure in another downbeat session on Wall Street, falling 0.6%,” CNBC reported. “The Dow Jones Industrial Average fell 237 points, or 0.8%. The Nasdaq also fell 0.3%.”

“Traders also bolstered their bond holdings Wednesday, as the Dow experienced its worst one-day drop since 2020,” the report added. “Earnings updates from big-box retailers showed rising inflation was dragging on corporate profits.”

Inverting yield curves have been signaling signs of a potential recession, which is also injecting a dose of fear into the capital markets. The dynamic between rising rates and retail earnings could also be spooking investors, providing another pathway to bonds as a safe haven.

“And I think we’re starting to see evidence in U.S. earnings in what’s been reported amongst retail stocks, that actually ramping up rates is starting to affect consumer demand,” said Julian Howard, head of multi-asset solutions at GAM.

Getting Necessary Bond Exposure

Investors ready to get bond exposure again can consider exchange-traded funds that offer a variety of debt holdings. One such fund from Vanguard to consider is the Vanguard Total Bond Market Index Fund ETF Shares (BND).

BND seeks the performance of Bloomberg Barclays U.S. Aggregate Float Adjusted Index. The Bloomberg Barclays U.S. Aggregate Float Adjusted Index 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 1 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.