FXstreet

What might 2019 hold for the bond markets and how should you invest for it?

The U.S. bond market in 2019 is getting perhaps a bit more interesting for investors. Yields aren't enticing by historical standards. Yet, they are higher than they have been for much of the decade given we're currently closer to 3% than 2% on Treasury 10-year bonds. Plus, if we truly are at the top of the cycle as the markets, and yield curve, seem to be suggesting, then perhaps bonds will form a more important part of your portfolio in 2019.

First off, a quick reminder on what determines returns to a bond investment. First off, the current yield. This is, in a sense, your baseline. If you buy a bond with a current yield of 3% and essentially nothing happens over the coming months and years, then you'll earn 3%. But it's important not to fixate on current yield alone. On top of that initial yield there are two other things to consider that can move prices over the shorter term.

So for, 2019 fixed income yields in the U.S. are potentially better than for some years over the last decade, but remain muted by historical standards. If you have confidence in a continuing expansion, then shorter-term bonds with some credit risk may make sense. If you see a recession coming, then intermediate government bonds may be the better move. If you are unsure, then various exchange-traded bond funds track the broader market without forcing you to take a view on specific market moves.

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