Catching up with the bond market

They’re not your flashy, fun friend who invites you to crazy parties, but they’ll be there for you when you need them. Yes, we’re talking about bonds.

Bonds started 2025 on a strong note, but when Trump unveiled his fateful Liberation Day posterboard, volatility shook the entire market, including the usually quiet world of fixed income.

But while some expected Treasury prices to rise as investors fled stocks, the opposite happened. Yields spiked as prices fell, giving investors no safe haven from the turmoil. The 10-year Treasury yield rose from 4.2% to 4.5% in the four days after April 4, its biggest jump since the financial crisis (keep in mind that bond yields rise when bond prices dip, and vice versa).

Since then, yields have fallen as bond traders accept the new tariff reality and see that the economy has managed to defy recession fears. Year to date, bonds have provided returns of about 4%, not far behind the S&P 500’s 5.8% gain. That may come as a surprise to many given that, over the past decade, bonds have only returned 2% annually, while the S&P 500 has gained 13% annually.

Your portfolio + fixed income = a bond like no other

So, where are the best opportunities in the bond market?

“The disinflationary cycle is drawing to a close, and markets should be able to look through the inflationary impulse driven by likely tariffs,” wrote Global Head of Fixed Income at Janus Henderson Jim Cielinski. “Overall yields on high quality bonds appear attractive as central banks continue easing. Relative valuations in credit sectors, however, are full. Despite muted default risk, selectivity is essential.”

Tax-free municipal bonds could be especially attractive right now, according to Barron’s, given that they fund a lot of infrastructure (cough, cough, datacenters). Other corners of the bond market that look particularly bright are dividend stocks, mortgage-backed securities, and collateralized loan obligations.—LB