Joseph Calrson: It’s Finally Time to Buy Bonds

It’s been a tough year for bonds. Technically, it’s been a tough three years. The bond market sold off in 2021, 2022, and is now on for a third consecutive decline. That’s the worst bond market performance in the United States since 1787.

With that kind of poor performance, the contrarian view is that it may be time to buy. And several events are setting up that may indicate above-average returns in bonds in the next 12-18 months.

For starters, the market has been hyperfocused on the 10-year Treasury bond yield.

They see a 5 percent yield there as a pivot point for the market. Yields touched on that level, and other Treasury bonds also already pay over 5 percent.

With this key point reached, billionaire investor Bill Ackman dropped his short position on U.S. Treasury bonds.

Yields are now at their highest level since 2007. Crucially, those 5 percent yields are considered zero risk. As long as the bond is held to maturity, it can’t lose value.

Compared with the stock market’s volatility to earn an 8-10 percent annualized return, yields are high enough to make for a strong alternative.

Meanwhile, if the economy slows and the Federal Reserve cuts rates, bond yields will drop. But existing bondholders will have locked in their high yields.

Plus, their bonds will rise in price to match the drop in yields. That makes for a potential opportunity, especially for long-dated bonds.

To watch the full analysis, click here.