Are Bonds Still Worth Owning?

Bonds have a reputation for being the boring part of an investment portfolio.

They’re supposed to provide a little stability.

No drama, please!

Well, the market apparently didn’t get the memo.

Government bonds have been selling off recently, pushing Treasury yields higher.1

For investors holding bond funds, that can mean watching the supposedly low risk part of their portfolio lose value.

Which raises an interesting question…

If recent returns from bonds have been so lousy, why bother owning them in the first place?

Let’s start with what’s happening.

Inflation concerns and expectations for higher interest rates have been putting pressure on the bond market.2

Imagine you bought a bond paying 3% interest.

A year later, newly issued bonds are offering 5%.

Now put yourself in another investor’s shoes.

Would you pay full price for that old 3% bond when you could buy a new one paying 5%?

Probably not.

To attract a buyer, the price of your existing bond would generally need to fall.

That’s the basic relationship between bond prices and interest rates. When market rates rise, existing fixed-rate bonds typically lose value.

And if you own a bond fund, those price changes can show up in your account balance as the market value of the fund’s holdings fluctuates.

So, if bonds can lose money like this, why bother owning them at all?

Imagine building a baseball team with nothing but power hitters.

You’d probably score plenty of runs.

But without some good pitching, you’d also give up quite a few.

There’s a reason successful teams need players who serve different purposes.

Your investment portfolio can work in a similar way.

Stocks have historically offered greater long-term growth potential, although they can experience substantial losses along the way.

High-quality bonds, in contrast, can serve a different role.

For starters, they can provide a source of interest income. That’s particularly useful for investors who need to generate cash flow from their portfolios.

Bonds have also historically been less volatile than stocks.

That can be especially appealing to investors approaching retirement or anyone who expects to draw on their savings in the next few years. A sudden stock market downturn is a lot harder to stomach when you need that money to pay your bills.
Finally, bonds can help diversify a portfolio.

Think back to the dot-com crash in the early 2000s or the 2008 financial crisis.

While stock markets suffered enormous losses, high-quality government bonds generally performed well.3

Now imagine watching your stock portfolio fall day after day. Every time you check the news, there’s another alarming headline.

Having a portion of your savings invested in something that’s holding its value, or even gaining value, can make those moments a little easier to stomach.

You still feel the losses. But you have something helping cushion the blow.

Of course, bonds don’t always provide that protection.

In 2022, stocks and bonds both suffered substantial losses as inflation surged and the Federal Reserve raised interest rates.

And it wasn’t the first time. Bond investors also experienced selloffs during the inflationary period of the late 1970s and early 1980s.4

In other words, bonds can help manage portfolio risk, but they aren’t immune to it.

So here’s another way to think about it…

Even an all-star pitcher can go through a rough stretch.

You might be frustrated with their recent performance. But you’d also remember why they’re on the roster in the first place.
Investing deserves a similar perspective.

Before judging a bond fund by its recent returns, consider the role it’s supposed to play in your portfolio.

Is it helping you accomplish what you need your investments to do?

That’s a question worth revisiting from time to time, especially when market conditions change.

Warmly,

Barry

Sources

1. Reuters, 2026 [URL: https://www.reuters.com/business/us-30-year-bond-yield-rises-highest-since-2004-selloff-deepens-2026-09-24/]
2. The Hill, 2026 [URL: https://thehill.com/business/6122822-10-year-treasury-yields-24-year-high-us-economy/]
3. PIMCO, 2026 [URL: https://www.pimco.com/ca/en/resources/education/recessions-what-investors-need-to-know]
4. Aswath Damodaran, 2026 [URL: https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html]