Buy Bonds Now? That Depends

I insist it is folly to quit sound invest-ments because of a bad quarter, but the bond market swoon of early 2022 tests my resolve. When superb stuff such as tax-exempt toll-road bonds, taxable infrastructure municipals and BBB corporates suffer losses of 6% to 10%, that is true shock and awe. The last time returns took a big wallop was the summer “taper tantrum” of 2013, when, despite the absence of inflation, traders overreacted to Federal Reserve plans to cut back bond purchases. That episode is remembered now as an epic buying opportunity— thus, it is tempting to interpret the current downturn in the same vein.

- Jeffrey R. Kosnett

Not so fast. With inflation elevated, there will not be another rampaging bull market by and by. But bond specialists wager that select parts of the bond universe will level off or recover somewhat. Jason Brady, CEO of Thornburg Investment Management, says he is starting to grab at interest-rate-sensitive IOUs. “I can buy solid investment-grade credit at 4% that not long ago was 1%,” he reasons. Megan Horneman, chief investment officer of Verdance Capital, says, “I don’t think we’ll take these types of losses in subsequent quarters.” She says bonds remain “challenged,” but urges investors to “remember why you buy fixed income.”