Courtney Myers Blog | Bond Yields are Up as the Market Ebbs and Flows: Why Investors Should Take Note | Talkmarkets

Bond Yields are Up as the Market Ebbs and Flows: Why Investors Should Take Note

Date: Friday, October 12, 2018 9:04 PM EDT

Though stock selloffs and the sharp Dow downturn took center stage this week, there is another market movement happening that’s far more optimistic: bond yields are spiking after an almost 10-year decline. The U.S. 10-year Treasury bond hasn’t had a return level this high since 2011 and the uptick could be indicative of the economy’s future direction.

Still, investors might wonder how they can keep their money secure and rising, especially when the market is ebbing and flowing a little more fervently than usual. Should they take immediate action or sit back and wait? Today, let’s discuss the relationship between stocks and bonds and how the movements of each can positively or negatively affect your overall investment portfolio.

How the U.S. Treasury Bond is Different

As a general rule, index funds that follow the S&P 500 tend to generate a higher yield than benchmark bonds provided through the U.S. Treasury. When the 2008 financial crisis hit the economy, the Federal Reserve adopted a new policy of lower interest rates aimed at keeping reserves conservative. As a result, bond yields weren’t able to grow too high. This directly affected both those looking to save for the long-term as well as those who had such bonds included in their diversified portfolios.

Seeking higher returns elsewhere, many concerned investors opted to move their money around during this sensitive time. For many, longer-term bonds were the answer, as they tend to carry higher overall yields than those with a shorter term. Others looked toward overseas investments as a point of rescue while still more turned to equity markets.

Yet, that was then and this is now. Today, the economy is on the uptick, with the national gross domestic product (GDP) moving past 4% in the second quarter of 2018 and anticipated to top 3% as we round out the year. Just last month, unemployment rates dipped to the lowest they’ve been in almost 50 years. This means that interest rates that used to be kept low are now rising, but how does this affect investors?

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