For years, Baby Boomers have been moving their money into the bond market in droves to ensure a steady income into retirement. But so far this year, yields have been falling lower and lower — until now. The yield on the 10-year Treasuryhit nearly 2.4 percent on Tuesday, the highest since October.
With the recent uptick in Treasury yields, is it time to reallocate the fixed income portion of your portfolio?
Not so fast. Although 10-year Treasury yields moved up more than 30 basis points (0.3 percentage point) in a week, there has been a huge decline in bond prices, as the broader stock market has been booming. The S&P 500 has more than doubled from its 12-year low reached three years ago on March 9, 2009.
So now may be a good time for Boomers to brush up on their bond allocations to make sure there is some balance.
Jeffrey Christakos, a certified financial planner at Westfield Wealth Management, tells clients to keep in mind there is inherent risk in all investments — even in bonds. Since bond prices have an inverse relationship with yields, if interest rates move higher, bonds issued at lower rates will experience price erosion. Then there is also inflation to consider, which erodes future purchasing power. A higher inflation scenario would drive yields on longer maturity bonds upwards, again reducing the price of the bond.