The bond market and the stock market are very correlated, and both are heavily affected by the economy. The bond market gives us lots of clues on how the economy can look like in the future with yield curves, and it helps us measure the current risk appetite of investors in the market. Bond investing obviously doesn’t excite people like it did decades ago, but it’s important as ever with current economic conditions.
For the 10-Year Treasury bond, the yield reached 3 percent for the first time since 2018, when fears of a recession were high due to a possible inversion in the yield curve. For reference, at the end of the last year, the yield for the 10-Year was at around 1.5 percent. This is blaring the concern of inflation in the economy, which doesn’t look to get any better with global issues. The role of interest rates has proven to be big, with the possibility of higher rate increases in the past few months fueling the rise in yields as the expectation continues to be bumped higher and higher by economists. If it was simply inflation, we would’ve seen a solid rise in 2021, but that was not the case. Currently, investors expect rates to increase to about 3 percent by next year, but economists believe that wouldn’t even beat inflation, which would lead to a further increase in bond yields. As shown, the markets tend to get into a volatile mess whenever the bond market gets messy with inflation, and all it shows us right now is that our portfolios aren’t safe just yet.
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.