The Great Bond Party of 2019 Is Ending

Author: , Post Date: January 20, 2020

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The Great Bond Party of 2019 Is Ending

With Federal Reserve rate cuts behind us and recession fears waning, don’t expect much from bond funds this year.
By Carla Fried – Published Jan. 17, 2020 – Updated Jan. 18, 2020

John R. Mousseau, CFA

Economic worries last year turned out to be great news for bond investors.

Interest rates fell sharply and bond prices rose as recession fears grew through the summer, resulting in the most profitable calendar year for bond fund investors since 2002. Core investments such as the Vanguard Total Bond Market Index mutual fund and the iShares Core U.S. Aggregate Bond exchange-traded fund gained nearly 9 percent in 2019.

Investors playing it safe in high-quality short-term bonds profited, too. The 3.5 percent gain for the Schwab Short-Term U.S. Treasury E.T.F. was more than a percentage point above inflation. The Baird Short-Term Bond fund gained 4.7 percent.

But the bond party of 2019 is expected to give way to a bit of a hangover this year.

“You don’t get those kinds of returns two years in a row unless something really bad happens to the economy and interest rates take another slice down, “ said John Mousseau, director of fixed income at Cumberland Advisors, a money manager.

That’s not widely anticipated. Mike Pyle, global chief investment strategist at BlackRock, expects that “the big forces” that set off last year’s bond rally are “going to recede into the background.”

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