Considering Core Bonds amid Stock Volatility

Key Insights

• Stock-market volatility may cause some investors to question if they have enough "ballast" in their portfolios.
• One important measure of ballast—an expected counter against a more volatile stock market—is duration, which measures the sensitivity of a portfolio to interest rate changes.
• Interest rates that have risen in recent years may eventually fall, at which point, the higher the duration, the more bond prices could be expected to rise.
• Many investors appear to be under-invested in duration. In a rate reduction environment, there may be greater reinvestment risk for investors at the short end of the yield curve.
• Investors have increased their cash holdings amounting to a 63% increase in asset flows to money market accounts since 2017.
• History suggests there could be benefits to investing in bonds ahead of a turn lower for rates.