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Why buy bonds now?

Key takeaways

  • Relatively high yields on investment-grade bonds are creating opportunities for both professional investment managers and individual investors.
  • Higher yields are reducing risks posed by interest rate uncertainty and enabling bond fund managers to invest in a wider variety of bonds.
  • Higher yields enable individual bonds to once again play their traditional role as sources of reliable, low-risk income for investors who buy and hold them to maturity.
  • Professional investment managers have the research, resources, and investment expertise necessary to identify these opportunities and help manage the risks associated with buying and selling bonds when interest rates are likely to change.

With the S&P 500 up by double digits over the past year, it may be tempting for investors to ignore bonds. Compared to the stock market, a 5% yield on a high-quality investment-grade corporate or US Treasury bond is hard to get excited about. And those yields appear to be the good news about bonds. In addition to yields, the other part of a bond’s total return is its price, and as of April 8, 2024, bond prices as represented by the Bloomberg US Aggregate Bond Index are lower than they were a year ago.

So why then does Jeff Moore, manager of the Fidelity® Investment-Grade Bond Fund (FBNDX) say that he’s “feeling better than he has in years about the prospects for bonds”?

Moore’s optimism comes from the fact that it’s possible to buy high-quality bonds with yields that are higher than they’ve been in years at prices that are still low enough to offer the potential for longer-term capital appreciation. “As yields have moved higher, this asset class is the most attractive it’s been in a long time,” he says. “As recently as 2 years ago, the average yield of the Bloomberg US Aggregate Bond Index, known as 'the agg,' which reflects the broadest overall measure of the US bond market, yielded just 1.42%. Now the agg has an average yield of 5%, intermediate-maturity investment grade bond yields average 5.35%, and longer maturities offer an average yield of 5.65%.”

Moore says that those high yields are not only a good source of income, they may also increase the attractiveness of bonds that are more sensitive to possible future changes in interest rates. To understand how susceptible a bond may be to interest rate risk, experienced investment managers look at a metric known as the bond's duration. Investing in bonds with shorter duration can be a way to help reduce the interest rate risk facing the bond portion of your portfolio. But Moore says that today’s high yields make duration less of a concern. “The more yield you can put into the portfolio—without taking excess risk, of course—the greater the potential for return, regardless of what else may happen with rates,” he says. By helping lower the risks of longer-duration bonds, higher yields are helping to create more potential opportunities for would-be bond buyers.

But why bother with bonds?

That combination of relatively high yields, reasonable prices, and an expanding opportunity set may not offer the sizzle of a high-flying stock market but that may be exactly the reason to consider adding bonds to your portfolio in the months ahead.

Stocks have shown so far this year that they can move upward quickly. But they can also move down with similar speed. Three years ago, for example, stocks were marching higher, month after month. The Financial Times went so far as to call the markets "boring." Then on July 19, 2021, the S&P 500 suddenly dropped 3% in a single day, bond yields fell, and investors got an attention-grabbing reminder of how bonds played a critical role in their portfolios. Those falling yields meant that the bonds' prices were rising and investors with fixed income assets in their portfolios could take comfort in the fact that the impact of falling stocks on the value of their portfolios was being offset by gains from their bonds.

While this sort of ability to protect capital may not be as inspiring as rising stock prices, it may be at least as important for many investors. As baby boomers exit the workforce and those born in the later 1960s and 1970s eye retirement on the horizon, many may be more concerned with holding on to what they have than with pursuing growth.

And what about interest rates?

Roughly half the yield of a typical corporate bond is determined by the rates on 10-year bonds issued by the US Treasury, the rest by the credit quality and other fundamentals of the issuer of the bond. The high yields that are a big part of bonds’ current attractiveness are largely a product of the Federal Reserve's campaign to lower inflation to around 2% by raising interest rates and keeping them high until inflation stays low. But while inflation has come down, many of the economic indicators that the Fed’s leaders base policy decisions on don’t suggest that the time has come to cut rates.

For those investors interested in bonds, but uncertain about the timing and impact of potential rate cuts, it’s good to consider that the CME Group’s survey of interest rate traders sees little likelihood of a rate cut before the 3rd quarter of 2024.

So if you are on the sidelines waiting in cash, it may be a good time to take advantage of the opportunities that current high yields are creating in bonds.

Investing in a bond mutual fund or ETF

Buying shares of a bond mutual fund or ETF is an easy way to add a bond position. Bond funds hold a wide range of individual bonds, which makes them an easy way to diversify your holdings even with a small investment.

An actively managed fund also gives you the benefits of professional research. For example, the managers can make decisions about which bonds to buy and sell based on huge volumes of information including bond prices, the credit quality of the companies and governments that issue them, how sensitive they may be to changes in interest rates, and how much interest they pay.

Not all bond funds are actively managed. Investors who seek bond exposure in a fund can also choose among exchange-traded and index funds that track bond market indexes such as the Bloomberg Barclays Aggregate Bond Index.

Here's more about the difference between investing in bond mutual funds and individual bonds.

Investing in individual bonds

If you have enough money and believe you have the time, skill, and will to build and manage your own portfolio, buying individual bonds may be appealing. Unlike investing in a fund, doing it yourself lets you choose specific bonds and hold them until they mature, if you choose. However, you still would face the risks that an issuer might default or call the bonds prior to maturity. So this approach requires you to closely monitor the finances of each issuer whose bonds you're considering. You also need enough money to buy a variety of bonds to help diversify away at least some risk. If you are buying individual bonds, Fidelity suggests you spread investment dollars across multiple bond issuers.

Fidelity offers over 100,000 bonds, including US Treasury, corporate, and municipal bonds. Most have mid- to­ high-quality credit ratings that would be appropriate for a core bond portfolio.

Tools and resources for investors looking for individual bonds include:

Personalized management

Separately managed accounts (SMAs) combine the professional management of a mutual fund with some of the customization opportunities of doing it yourself. In an SMA, you invest directly in the individual bonds, but they are managed by professionals who make decisions based on factors such as current market conditions, interest rates, and the financial circumstances of bond issuers. Find out more about separately managed accounts.

Whatever your bond investing goals, professionally managed mutual funds or separately managed accounts can help you. You can run screens using the Mutual Fund Evaluator on If you are looking for a high-quality intermediate-term fund, here are some ideas from the Fidelity Mutual Fund Evaluator, as of April 15, 2024.

Intermediate bond mutual funds

  • Fidelity® Total Bond Fund (FTBFX)
  • Fidelity® Intermediate Bond Fund (FTHRX)
  • Fidelity® Investment Grade Bond Fund (FBNDX)


  • Fidelity® Total Bond ETF (FBND)
  • Fidelity® Corporate Bond ETF (FCOR)
  • iShares Core US Aggregate Bond ETF (AGG)
  • iShares Core Total USD Bond Market ETF (IUSB)

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More to explore

Before investing in any mutual fund or exchange-traded fund, you should consider its investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus, an offering circular, or, if available, a summary prospectus containing this information. Read it carefully.

The Fidelity screeners are research tools provided to help self-directed investors evaluate these types of securities. The criteria and inputs entered are at the sole discretion of the user, and all screens or strategies with preselected criteria (including expert ones) are solely for the convenience of the user. Expert screeners are provided by independent companies not affiliated with Fidelity. Information supplied or obtained from these screeners is for informational purposes only and should not be considered investment advice or guidance, an offer of or a solicitation of an offer to buy or sell securities, or a recommendation or endorsement by Fidelity of any security or investment strategy. Fidelity does not endorse or adopt any particular investment strategy or approach to screening or evaluating stocks, preferred securities, exchange-traded products, or closed-end funds. Fidelity makes no guarantees that information supplied is accurate, complete, or timely, and does not provide any warranties regarding results obtained from its use. Determine which securities are right for you based on your investment objectives, risk tolerance, financial situation, and other individual factors, and reevaluate them on a periodic basis.

The views expressed are as of the date indicated and may change based on market or other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author, as applicable, and not necessarily those of Fidelity Investments. The third-party contributors are not employed by Fidelity but are compensated for their services.

This information is intended to be educational and is not tailored to the investment needs of any specific investor.

As with all your investments through Fidelity, you must make your own determination whether an investment in any particular security or securities is consistent with your investment objectives, risk tolerance, financial situation, and evaluation of the security. Fidelity is not recommending or endorsing this investment by making it available to its customers.

Past performance is no guarantee of future results.

A bond ladder, depending on the types and amount of securities within it, may not ensure adequate diversification of your investment portfolio. While diversification does not ensure a profit or guarantee against loss, a lack of diversification may result in heightened volatility of your portfolio value. You must perform your own evaluation as to whether a bond ladder and the securities held within it are consistent with your investment objectives, risk tolerance, and financial circumstances. To learn more about diversification and its effects on your portfolio, contact a representative. The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, mortgage-back securities (agency fixed-rate pass-throughs), asset-backed securities and collateralised mortgage-backed securities (agency and non-agency). The S&P 500® Index is a market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent US equity performance.

In general, the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so holding them until maturity to avoid losses caused by price volatility is not possible. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

High-yield/non-investment-grade bonds involve greater price volatility and risk of default than investment-grade bonds.

Lower yields - Treasury securities typically pay less interest than other securities in exchange for lower default or credit risk.

Interest rate risk - Treasuries are susceptible to fluctuations in interest rates, with the degree of volatility increasing with the amount of time until maturity. As rates rise, prices will typically decline.

Call risk - Some Treasury securities carry call provisions that allow the bonds to be retired prior to stated maturity. This typically occurs when rates fall.

Inflation risk - With relatively low yields, income produced by Treasuries may be lower than the rate of inflation. This does not apply to TIPS, which are inflation protected.

Credit or default risk - Investors need to be aware that all bonds have the risk of default. Investors should monitor current events, as well as the ratio of national debt to gross domestic product, Treasury yields, credit ratings, and the weaknesses of the dollar for signs that default risk may be rising.

Exchange-traded products (ETPs) are subject to market volatility and the risks of their underlying securities, which may include the risks associated with investing in smaller companies, foreign securities, commodities, and fixed income investments. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnified in emerging markets. ETPs that target a small universe of securities, such as a specific region or market sector, are generally subject to greater market volatility, as well as to the specific risks associated with that sector, region, or other focus. ETPs that use derivatives, leverage, or complex investment strategies are subject to additional risks. The return of an index ETP is usually different from that of the index it tracks because of fees, expenses, and tracking error. An ETP may trade at a premium or discount to its net asset value (NAV) (or indicative value in the case of exchange-traded notes). The degree of liquidity can vary significantly from one ETP to another and losses may be magnified if no liquid market exists for the ETP's shares when attempting to sell them. Each ETP has a unique risk profile, detailed in its prospectus, offering circular, or similar material, which should be considered carefully when making investment decisions.

Indexes are unmanaged. It is not possible to invest directly in an index.

The Fixed Income Analysis tool is designed for educational purposes only and you should not rely on it as the primary basis for your investment, financial or tax planning decisions.

Diversification and asset allocation do not ensure a profit or guarantee against loss.

Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.

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