Long-term bonds used to be the smart investor’s way to squeeze some juice out of the fixed income side of a portfolio.
The interest rate surge of 2022 has annihilated long bonds while highlighting the defensive quality of short-term bonds. Bonds maturing in one to five years have fallen in price this year - let’s not over-dramatize their heroics. But the drop in the FTSE Canada Short Term Overall Bond Index for the year through June 8 was 4.6 per cent on a total return basis . In the bond market of 2022, that’s a comparatively strong performance.
Long bonds are the bigger disaster, though. The FTSE Canada Long Term Bond Index was off 22.3 per cent for the year to date. When rates peak, long bonds could be a fantastic rebound play. For now, they are like lighting your money on fire.