Bond Markets in 2023
Investors had to adapt to an environment of higher interest rates since early 2022. In the summer of 2023, rates continue to edge higher and are expected to stay elevated in near future. Specifically, the yield on the bond market’s benchmark 10-year U.S. Treasury note reached its highest level since 2007. This made the overall bond yields look very attractive and it may be a time for investors to consider positioning fixed-income portfolios to capture upside potential.
The Significance of Bonds
Bonds allow governments and corporations to raise funds for projects and operations. Whether you’re trying to balance out your portfolio, reacting to a stock market correction, or looking for a steady stream of income, bonds are a vital asset in your investment portfolio.
Bond Mechanics: Lending Capital for Regular Income
When you buy a bond, you (the investor) are loaning money to a borrower such as a company, municipality, government, or government agency. In return, you receive interest on your investment at regular, scheduled intervals. Unlike stocks, bonds don’t give you ownership; instead, they offer a steady income source. Each bond type has its advantages and risks (refer to our FAQ 3), and investors should carefully consider these factors when deciding which bonds to buy.
Here are different types of bonds to get you started: