The 10-year Treasury bond is enduring its worst performance in more than a century. Prices have fallen sharply as yields climbed. Yet investors continue to buy bonds despite the prolonged slump.
Yields and prices move in opposite directions. A sharp rise in yields means existing bond prices have dropped. This decline has lasted longer than any stretch in over 100 years.
Higher yields make new bond purchases more attractive. Buyers can lock in greater income than they could just a few years ago. That shift has drawn fresh money into the market.
One strategist noted that rising yields become more enticing for new money. The appeal grows as returns improve. This logic is driving some investors back into fixed income.
Inflation and Federal Reserve policy have pressured bond prices. The central bank raised rates aggressively to cool price growth. Those moves pushed yields to levels not seen in years.
Long-term investors often welcome higher yields. They can earn more income over time. Falling prices also create opportunities to buy at a discount.
Bonds still carry risks. Further rate hikes could push prices even lower. But for many buyers, the income potential now outweighs those concerns.
The market’s rough run has not scared off all investors. Instead, it has changed the math for new purchases. Higher yields are rebuilding demand, even amid historic losses.
