Are Bonds a Good Investment Today? 

After the most aggressive interest rate-hiking cycle in more than four decades, the fixed income landscape looks meaningfully different than it did just a few years ago. From March 2022 through July 2023, the Federal Reserve raised its benchmark rate from near zero to 5.25%-5.50%, resetting bond yields to levels not seen since before the 2008 financial crisis. 

Although the Federal Reserve eased policy somewhat in 2024 and 2025, the overall shift upwards was painful for bond investors. A long history of falling interest rates and modest inflation had left many investors complacent about the risks and opportunities when investing in bonds. However, on the positive side, it has improved the forward-looking return potential for fixed income relative to the near-zero rate environment.  

Let’s look at where bond returns may come from today and some practical strategies for investors to consider. 

Refresher: How Do Bonds Work? 

The primary source of returns from bonds comes from yield, often referred to as the coupon or the income from a bond. This makes the current yield of a fixed-income portfolio both important and a relevant input when considering potential future returns. The income component of fixed-income securities may also help offset periods of time where the price return of bonds may be negative. 

A Bond’s Starting Yield Is a Useful but Imperfect Indicator of Future Return 

Historical data map the 10-year U.S. Treasury yield against the future 10-year return of the Bloomberg U.S. Aggregate Bond Index. There is a historical relationship between starting yield and future return. Research has consistently shown a strong historical correlation between the current 10-year U.S. Treasury yield and the subsequent 10-year return of the Index. 

Since 1983 there have been eight rate-rising cycles, and as historical data shows, markets have reacted differently across those cycles. Historically, the Index has produced positive returns during many of these rate-rising periods, though outcomes have varied. In most prior cycles, starting yields were meaningfully higher than they were heading into 2022, giving fixed income investors more cushion to absorb price declines. 

The 2022-2023 cycle was a notable exception. Starting yields were near historic lows when the hiking cycle began, which contributed to steep price declines. The Bloomberg U.S. Aggregate Bond Index fell -13.01% in 2022, the worst calendar year on record for core fixed income. That outcome illustrates that low starting yields may leave less income cushion when rates rise. 

What This Means for Investors Today 

The picture looks different now. The 10-year U.S. Treasury yield was approximately 4.5% in June 2026, well above the sub-2% levels that prevailed before 2022. Higher starting yields may support higher expected returns than were available when yields were near historical lows, based on the historical relationship between yield and forward performance. They also provide more income to help offset some future price volatility. 

Do Bonds Still Have a Place in My Portfolio? 

For many investors, bonds may continue to play a role in a diversified portfolio, depending on the investor’s goals, time horizon, liquidity needs, and risk tolerance. Fixed income has historically been both a return-generating and risk-mitigating asset. Higher current yields may improve the return side of that equation. And as a risk-mitigating asset, fixed income can still play an important role in a diversified allocation. 

Historically, the Bloomberg U.S. Aggregate Bond Index has tended to outperform equities during periods of significant stock market declines, demonstrating its potential value as a portfolio stabilizer. However, bonds and equities can decline at the same time, as occurred in certain rising-rate or inflationary environments. 

Recent notable examples of this capital preservation benefit include the sell-off in spring 2020 at the onset of the COVID-19 pandemic and the 2008 Global Financial Crisis. Having an allocation to core fixed income during these events may have helped reduce portfolio volatility for investors with diversified allocations. 

What Now? 

With yields having reset to more competitive levels, the case for fixed income is potentially more compelling than it was during the near-zero rate environment. Bonds continue to play an important role in globally diversified portfolios for many long-term investors. Rather than engaging in market timing, trying to decide when to get into or out of bond investments based on changing market conditions, Savant Wealth Management supports investors in identifying a long-term strategic asset allocation that aligns with their overall financial plan. 

Here’s what we consider when structuring fixed income in client portfolios: 

• Diversifying a portfolio’s fixed income exposure away from traditional core fixed income. Dynamic bond strategies that allocate across the fixed income landscape can help manage exposure to certain risks, including interest rate volatility. These strategies often have lower duration profiles compared to traditional core fixed income and may be able to take advantage of greater volatility in fixed income as a source of return. They may also involve additional risks, including credit risk, liquidity risk, leverage risk, manager risk, and the risk that the strategy does not perform as expected. 

• Alternative strategies, like private credit, can provide some protection from traditional sources of risk like rising interest rates. The floating-rate nature of private credit may reduce sensitivity to changes in interest rates compared with some fixed-rate investments. Private credit involves significant risks, including illiquidity, credit/default risk, valuation risk, limited transparency, and manager-specific risk, and may not be appropriate for all investors. Savant accesses private credit strategies for wealth management clients through both interval funds and private investment vehicles for qualified purchasers. 

• Aligning duration with individual risk tolerance and time horizon. Longer-duration bonds carry more interest rate sensitivity. Investors who prefer to limit that sensitivity may favor shorter-duration exposure, while those with longer time horizons may consider whether to accept the higher yields available further out on the yield curve in exchange for greater interest rate sensitivity. 

The right fixed income strategy depends on individual goals, time horizon, liquidity needs, tax considerations, and risk tolerance. A fiduciary advisor can help evaluate how bonds fit into your broader financial plan. Schedule an introductory call today to discuss how fixed income may support your long-term investment strategy. 

This is intended for informational purposes only. You should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment advice from Savant. Please consult your investment professional regarding your unique situation. Past performance may not be indicative of future results. Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your account holdings correspond directly to any comparative indices or categories.