Bonds at midyear: Where do we go from here?

July 29, 2021

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Bond prices rose in the second quarter as the Federal Reserve turned more hawkish. Investors reasoned that the Fed would keep inflation reined in, putting downward pressure on yields. While inflation remains a significant risk, it is hard to envision a scenario in which it runs unchecked by the Fed, according to the latest issue of Vanguard Active Fixed Income Perspectives.

For many institutional investors, the question remains: Where do we go from here? There have been enormous sums of money stacked up in the short end of the yield curve as many investors have positioned themselves to avoid the negative impact of a large move higher in interest rates. Others have gone searching for yield in more obscure assets. We see neither of these, in the extreme, as the solution to a difficult market. Instead we prefer to be patiently opportunistic using a diversified set of strategies to add value.

Learn more about our views on the global economic outlook, interest rates, credit markets, and the implications for Vanguard funds in the latest issue of Vanguard Active Fixed Income Perspectives.

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Notes:

  • All investing is subject to risk, including the possible loss of the money you invest.
  • Diversification does not ensure a profit or protect against a loss.
  • Investments in bonds are subject to interest rate, credit, and inflation risk.