Chart of the Week: Back To Life

Bonds are regaining their traditional portfolio role because higher yields now provide income and a buffer against further price declines.

• After the global financial crisis, near-zero rates and quantitative easing pushed government bond yields to unusually low levels; 10-year US Treasury yields briefly fell to around 0.5% during the pandemic.
• Inflation and subsequent central-bank rate hikes caused bond prices to fall as yields rose, producing a particularly difficult period for bond investors in 2022.
• Higher yields also increase the income received by new bond investors, which can cushion further price falls and be reinvested at improved rates.
• Over the past year, the Bloomberg Total Return US Treasury Index delivered a positive total return even though the 10-year Treasury yield increased by approximately 0.6 percentage points.
• Deutsche Bank calculations indicate that, from a current 10-year Treasury yield of around 4.85%, yields would need to rise to roughly 5.5% over one year or 6.4% over two years for total returns to turn negative.

Takeaway: Government borrowing, uncertain inflation and public-finance concerns could still weigh on bonds, but current yields restore meaningful income, downside cushioning and potential diversification when economic growth weakens.