So far in 2022, with inflation raging, bonds have lost 10%—among the worst returns in U.S. history. On Wednesday, the Federal Reserve raised interest rates by 0.5 percentage point, the sharpest increase in 22 years.
Yet, just as your body begins healing from an injury before you can feel any improvement, the worst for bond investors might already be ending. Those who dump bonds now might be making a mistake by selling low after buying high.
Let’s start by putting the pain in historical perspective.
The U.S. bond market has had positive returns, before inflation, in all but four years since 1976. Even in 1994, when the Federal Reserve raised interest rates six times for a total of 2.5 percentage points, bonds lost only 3% in the aggregate.
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