10-year Treasury yield hit a 19-year high—and some investors see opportunity to buy bonds

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Often it doesn't feel like good news when a U.S. economic indicator matches a level last seen in 2007. But 10-year Treasury notes offering the highest yield since that year could be good news for investors looking to buy bonds.
Elevated inflation, especially higher oil prices, combined with expectations that the Federal Reserve will hike rates at least one more time this year, helped drive the 10-year Treasury yield to 5.208% on Thursday — the highest it's been since June 2007, before the global financial crisis. Yields remained elevated on Friday.
Higher long-term bond yields are often seen as a headwind for the stock market because they correlate with higher borrowing costs for consumers and companies, which can then slow down the overall economy. They can be especially bad news for consumers looking to take out a mortgage or other loan.
"As the 10-year yield goes up, borrowing costs for mortgages also go up almost in lockstep with it," says Dominic J. Pappalardo, chief multi-asset strategist at Morningstar Wealth. "Things like auto loans are also impacted. Really, kind of any consumer financing or borrowing rates are pretty closely linked to the 10-year Treasury yield."
On the flip side, rising Treasury yields do present an opportunity for bond investors.
"Higher interest rates benefit savers and investors just as much as they're harming spenders," Pappalardo says. "If you have money in savings or money to invest as interest rates go up, you are being paid a higher interest rate or generating more income from your savings and investments because of the yields moving up."
"Real yields" on Treasury notes, which measure yields after adjusting for expected inflation, have risen on net since February, around the time the war with Iran began and oil prices jumped. Investors can benefit from higher yields on longer-term bonds in particular, because they may be able to lock in higher rates for longer. Long-term Treasury yields are determined in the public bond market, which typically responds to higher inflation expectations, among other factors.
"Because of that, there's potentially a really strong opportunity to lock in very attractive levels," says Steve Laipply, global co-head of iShares Fixed Income ETFs for BlackRock. "We refer to it as a generational income opportunity."
Financial and investing professionals caution against making any major money moves based on short-term market conditions. Buying bonds because they look good right now may not be the best move for every investor. It's a good idea to work with a professional to see what makes sense for your individual financial situation.
Who should consider buying bonds right now?
Bond yields tend to rise when inflation expectations are high. Elevated oil prices due to the war with Iran have contributed to rising bond yields since February, and recent comments from the Fed have led investors to anticipate continued inflation and further rate hikes.
Treasury notes and bonds typically make fixed interest payments. When yields rise, prices of existing Treasurys tend to fall because their lower fixed payments become less attractive to investors compared with newly issued Treasurys. The inverse happens when yields fall.
Investors generally hold bonds to diversify their portfolios with assets that help them keep more of their money in a less volatile vehicle than stocks. Treasury notes and bonds also pay interest every six months, so they have an income benefit as well.
While individuals nearing or already in retirement could benefit most from elevated Treasury yields, Pappalardo says other investors with a near- to immediate-term goal, like those looking to buy a home in the next five to 10 years, may consider adding or increasing bond holdings.
Additionally, "investors should have an idea of their time horizon," Laipply says. "Do they want to invest for a period of five years, or are they comfortable investing longer-term, or do they simply want to stay very nimble?"
Though this week's acceleration in bond yields may be attractive to investors, they could continue to rise. If the Fed raises rates more than the hikes already priced in, or if oil prices move significantly higher, Treasury yields could rise even further, Laipply says.
On the other hand, if the conflict with Iran de-escalates and oil prices settle down soon, bond yields could fall. All to say, investors shouldn't try to time the bond market. However, there is less risk with Treasury yields compared with trying to time the stock market, Pappalardo says.
"Even if rates go from 5% to 6%, yeah, you may see some price decline, but it's relatively marginal," he says — although the impact may vary depending on a bond's duration, a measure of its sensitivity to interest rate changes.
Investors can buy individual bonds that are aligned with their time horizon or get broader exposure with a bond exchange-traded fund, Laipply says.
"Let's say you have an investor who's extremely cautious and wants to sort of wait to see how things settle down before they decide to commit by investing further out on the curve; they could buy something like SGOV," he says. That ETF includes Treasury bills with maturities of three months or less.
"There are a number of different ways for investors to earn income without feeling like they're taking risks that they're not comfortable with," he says.
But like the stock market, Pappalardo advises against investors making emotionally charged decisions on their investments. Though it can feel exciting to see the income potential with decades-high Treasury yields, "I wouldn't suggest somebody completely rebuilds their entire portfolio or investment approach today," he says.
"It's prudent and makes sense to tweak it to try and take advantage of that new marginal opportunity to generate more income off of bond investments," he adds. But "don't blow up everything and start from scratch."
Depending on your time horizon and risk tolerance, if 10% of your portfolio is currently in bonds, you may consider bumping that allocation up to 15% or 20%, he says, for example.

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