Mid-Year Outlook for Bonds

You can expect mild losses in the bond market, but fixed income still has its place in your portfolio.

In my January outlook column, I said that bonds would lose 2% or so over the first part of 2018, even after accounting for interest payments. I regret to confirm that this forecast was on target, as Bloomberg Barclays U.S. Aggregate bond index is down 2.7% so far this year. As an ardent bond investor, I’d rather see positive total returns. But I still don’t believe it’s dangerous to own interest-paying securities, whether bonds or bondlike alternatives. Fixed-income investors will lose a little principal as interest rates rise (prices and rates move in opposite directions), but you’ll still get paid on time. Nonetheless, considering that no investment category can gain indefinitely—and that includes bonds, stocks, real estate, gold, oil and even rare wine—it’s time to ask whether bonds and bondlike investments have finally crossed a red line and are headed for deeper losses.

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Jeffrey R. Kosnett
Senior Editor, Kiplinger's Personal Finance
Kosnett is the editor of Kiplinger's Investing for Income and writes the "Cash in Hand" column for Kiplinger's Personal Finance. He is an income-investing expert who covers bonds, real estate investment trusts, oil and gas income deals, dividend stocks and anything else that pays interest and dividends. He joined Kiplinger in 1981 after six years in newspapers, including the Baltimore Sun. He is a 1976 journalism graduate from the Medill School at Northwestern University and completed an executive program at the Carnegie-Mellon University business school in 1978.