iShares: Three Lessons (and a Song) for Navigating the Bond Market

ETF Trends

I’ve been investing, analyzing, and providing investment recommendations on the fixed income markets for over 20 years. But in the past five to 10 years, I’ve witnessed the bond market transform into a very different asset class.

The rock anthem by The Who, “Won’t Get Fooled Again,” summarizes what I feel is one of the key issues today: investors have been fooled into accepting interest rates below the level of inflation. They are facing a bond market that has been turned on its head by what I like to call the “Dukes of Moral Hazard.”

It is caught between the incredible influence of central banks and their policy choices -– easy money and resulting low yields — and the conflict those choices have with the seismic demographic shift toward retirement that is forcing investors to search high and low for income.

The forces shaping today’s market require a very different way of thinking about the opportunities and risks in fixed income, and the role bonds play in an overall investment portfolio. This means you may need to change your approach to bond investing, and I’ll be delving into these issues in future posts.

While today’s markets are profoundly different from any that we’ve experienced, many of the lessons I have learned in my 20-year career can help you approach today’s new world of fixed income.

Here are three of those lessons:

  1. Financial crises are the norm not the exception.
  2. Avoid an excess of greed during booms.
  3. Maintain flexibility in your portfolio to enable you to potentially take advantage of busts.

Jeff Rosenberg is BlackRock’s Chief Investment Strategist for Fixed Income.

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