Bonds are a type of fixed-income investment that represent a loan made by an investor to a borrower, typically a corporation or government entity. In exchange for the loan, the borrower agrees to pay back the principal amount plus interest over a specified period of time. Bonds can be bought through an online broker, an ETF, or directly from the U.S. government. Bond ETFs can provide diversified exposure to the bond market, making it easier for investors to access a variety of bonds in a single investment.
“Bonds can bring stability, in part because their market prices have been more stable than stocks over long time periods,” says Alvarado. “By including bonds in your investment portfolio, you can help protect your principal and reduce overall portfolio volatility.”
Traders surprised by this year's painful rise in bond yields are still looking to snap up US debt given their ongoing assumption the US economy's strength will persist. Bonds are often considered a safe haven asset, providing a reliable source of income and capital preservation in times of market volatility.
If you're risk-averse or looking to protect principal, bonds can be a suitable investment option. This is where to safely keep the cash you'll need within five years. Rick Rieder, BlackRock's veteran fixed-income chief and the manager of its Flexible Income ETF, explains how to build a portfolio with high-quality bonds that can provide stable returns over time.
Last week, artificial intelligence server maker Super Micro Computer achieved something not seen since 2021: It paid 0% interest rate on a bond issuance. This highlights the current low interest rate environment and the appeal of bonds as a fixed-income investment option.
Rising interest rates have sparked elevated Treasury yields, representing a headwind to prices of longer-dated bonds. Investors are closely monitoring the bond market to gauge the impact of rising rates on bond prices and yields.
Ivanna Hampton, a financial analyst, notes that many investors are trying to figure out what's next for bonds and how they fit into their portfolios. With the current market uncertainty, bonds can provide stability and income for investors seeking to mitigate risk in their investment holdings.
