In today’s economic landscape, we’re surrounded by uncertainty. For example, we’re facing yet another indicator that our economy may be headed for a “hard landing” from high inflation.
On October 4, 2023, the yield on the ten-year U.S. treasury bond reached its highest level since the subprime mortgage crisis began in 2007. According to The Wall Street Journal, this surge in interest rates is “threatening hopes for an economic soft landing.”
While this may seem like concerning news for our economy, it may also provide a golden opportunity for those looking to protect and even grow their portfolios.
Rising bond yields have “cratered” bond prices.
According to Business Insider, “longer-term bonds prices have cratered in one of the worst collapses in market history.” But what caused this “bond meltdown?”
In an effort to quash inflation, the Federal Reserve has spent the last two years engaged in a rate hiking campaign. This campaign brought the benchmark Federal Funds rate to a range between 5.25% and 5.5%, a 22-year high. In the Federal Reserve’s last Federal Open Market Committee meeting on September 20, 2023, officials indicated they may raise rates even further later in the year.
Because of the sharp rise of these rates, newly-issued bond yields have skyrocketed, greatly reducing demand—and thus the price—of older bonds issued at lower rates. According to Michael Hartnett, a strategist at Bank of America, U.S. bonds have just entered their worst bear market in the history of our nation.
The bond market collapse may negatively impact the portfolios of those owning them.
Considering that many Americans hold primarily a mix of stocks and bonds in their portfolios, the falling prices of bonds may negatively impact consumers wealth. In an October 4, 2023, interview on the Fox Business program “Mornings with Maria,” “Bond King” and DoubleLine Capital CEO Jeffrey Gundlach warned that macroeconomic indicators are “strongly suggestive” of more volatility.
I spoke with our director of education, Brad Chastain, and asked him how this drop in bond prices might affect consumer portfolios. He said, “As we've entered this environment of higher interest rates, many Americans are surprised to find that their bonds aren't providing as much portfolio protection as they expected. Since January 2022, stocks are down nearly 10% while bonds are down more than 14%. When adjusted for inflation, bonds have lost 22% of their purchasing power.”
Traditionally, bonds are considered less volatile than stocks, helping to balance an overall portfolio. But in an environment where both are experiencing losses, it may be time to explore other opportunities for safeguarding our hard-earned savings.
Gold has historically been viewed as a safe haven from volatility in financial markets.
One of the most universally touted strategies for protecting our wealth is diversification. For many Americans, a 60/40 mix of stocks and bonds is considered a traditional starting point—but what do we do when both stocks and bonds are going down?
This is where additional assets—particularly those that have little to no price correlation with one another—may help strengthen a diversification strategy. Physical precious metals like gold, for example, are not directly tied to paper-based assets like stocks, and can experience increases in times of both recession and economic growth.
Gold, in particular, has been historically recognized as a safe-haven asset for its ability to hedge against the ups and downs of the stock market and serve as a store of wealth in times of both volatility and uncertainty.
I encourage you call U.S. Money Reserve today to learn more about the benefits of owning physical gold, and see how it can help protect your own hard-earned savings.