Rare bear market for global bonds

A rare bear market in bonds hasn’t gotten as much attention, but it may be inflicting more pain on investors than the downturns for stocks, cryptocurrencies and almost every other investment.

Investment-grade bonds — those issued by governments and corporations around the world with good credit ratings — have fallen more than 20% from their peak. That’s a huge deal for what’s supposed to be the safe part of any portfolio. Investors expect bonds to offer stability when stocks and other risky investments take one of their notoriously sharp swings.

This year’s returns for the widely followed Bloomberg Global Aggregate index of high-quality bonds look to be the worst since its 1990 inception. It could be one of the worst years ever for bonds, if not the worst.

Bond prices around the world have been falling as central banks rush to raise interest rates in hopes of beating back the high inflation damaging economies globally.

When interest rates rise, they knock down prices for older bonds already sitting in investors’ portfolios. That’s because the older bonds’ yields suddenly look less attractive than what newer bonds are offering. Some bonds are protected from such price swings, such as I-bonds issued by the U.S. government, but access to them is limited.

The widespread expectation is that the Fed and other central banks will keep raising rates, which should maintain pressure on bonds.

Despite these challenges, many professional investors say bonds should still fill the role of a portfolio’s safe part. That’s because other options look even more risky.