Columbia Threadneedle: Why Starting Yields Matter
February 28, 2025
Source: Columbia Threadneedle Investments, based on Bloomberg data as of January 8, 2025. U.S. Agg is represented by the Bloomberg U.S. Aggregate Bond Index; High yield is represented by the Bloomberg U.S. High Yield Corporate Bond Index. It is not possible to invest directly in an index. Past performance is not a guarantee of future results.
- Historically, starting yields on bonds have been the strongest predictor of future total return. With current yields still at multi-decade highs, bonds have the potential to provide compelling returns and cushion against future interest rate and market volatility. And because yield and price move in opposite directions, investors could get a price upside from yields moving lower.
- For investors concerned about rising yields, it’s important to recall that today’s environment is very different from 2022, a period when sharp rate increases led to negative returns across most fixed-income sectors. The starting yield for the 10-year U.S. Treasury bond as of January 31, 2025 was 4.5% versus 1.8% in 2022. At their current high levels, even if yields were to increase by 50 basis points from their current high levels, bonds have the potential to provide positive returns.
- Starting yields matter: Today’s starting yields offer a strong entry point, regardless of the sector, from which investors can maximize the return potential while offsetting the negative impact of interest rate volatility.
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