Investment Perspectives

Recession: Do your bonds really have you covered?

Fixed income allocations play an important role in portfolios, especially during economic slowdowns. Portfolios often rely on the relatively low volatility bonds can provide during periods of equity swings. Common strategies many advisors use with this asset class, though, may not deliver the results they expect. 

Is there a better equity approach?

Many investors seek to upgrade the fixed income portion of their core portfolio in two ways:

Fixed income instinct 1: Shorten duration.

Shortening duration won’t help:

The Fed is already done hiking rates for now. 

Fixed income instinct 2: Overweight credit.

Rate hikes are behind us, but credit is priced dearly.

Sources: Bloomberg, Bloomberg Index Services Ltd. Midpoint of target range shown for fed funds target rate. Rise in yields shown is from the date of the first Fed rate hike in 12/2015 to 12/31/18. The red zone of credit spreads indicates that they are in the tightest quartile over the 20-year period ending 12/31/18, below 381 basis points.


It doesn’t pay to be overweight high-yield credit when spreads are tight or we’re late cycle.

Know what you own with bond funds.

  • Think your core bond fund has you covered? You may be exposed to unintended risks.
  • You’re not getting paid for taking more risk, so make sure your core bond fund is truly a core bond fund. Data suggest many are not.

Other approaches to consider

Downside resistance and discipline

The Bond Fund of America® (Class F-3, net of fees) (BFFAX)

Figures shown are past results for Class F-3 shares and are not predictive of results in future periods. Current and future results may be lower or higher than those shown. Share prices and returns will vary, so investors may lose money. Investing for short periods makes losses more likely. For current information and month-end results, visit

Fixed income summary



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More in this series: Upgrade your core portfolio

When is the next recession?

Is there a better equity approach?

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