Vanguard says it’s a “new era” for bonds, where higher rates for longer will mean better long-term returns for investors, even in the higher-quality sectors of the market.
“Given where we are in the cycle, given that there is a recession on the horizon, we want to be up in quality,” Devereux said. “That means Treasuries, agency mortgages, munis, and within credit, it means investment grade.” Devereux doesn’t expect the Fed to raise rates at its policy meeting next month, but didn’t rule out the possibility of an increase in December. She cautioned about the signal it might send to investors if the Fed holds off hiking this year.
Indeed, prices of Treasuries are on track for three consecutive years of declines. Other bonds, including mortgage-backed securities and high-quality corporate debt, have been hammered too. As for high-yield bonds, Devereux said Vanguard is neutral “in the sense that we’re not overweight” and that while there are opportunities, investors have to be selective.