Is now a good time to buy? Experts weigh in

Rising bond yields have put fixed income back in vogue as an alternative to cash or the volatile stock market.

“There is a huge amount of opportunity in the fixed-income markets, one we haven’t seen in about a decade and half,” BlackRock Americas iShares Investment Strategy Head Gargi Chaudhuri recently told Yahoo Finance Live.

There are many types of bonds investors can choose from — including municipal, US Treasury, and corporate-issued.

In Yahoo Finance’s ongoing series, “What to do in a bear market,” we asked the experts what type of bonds investors should be buying in this economic environment.

Is this a time to buy bonds over equities? If so, why?

“We do see opportunities to moderate portfolio risk by holding more bonds than usual relative to stocks,” Bill Merz, head of capital market research at U.S. Bank Wealth Management, told Yahoo Finance.

“Macroeconomic signals remain cautionary for stocks and other riskier assets,” said Merz. “Inflation remains problematic and will keep central bank policy on a restrictive path. Liquidity signals represent levels that typically precede weaker stock performance and better bond performance.”

The Federal Reserve has been increasing interest rates in order to combat inflation. Equities have declined as investors have priced in the impact of future profits. The S&P 500 (^GSPC) is down 17% year-to-date. The tech heavy Nasdaq (^IXIC) is down 30%.

“It is lower risk right now to buy bonds over equities as we believe that long term interest rates have stabilized whereas the stock market remains volatile as the Fed continues to be hawkish,” Jay Hatfield, CEO at Infrastructure Capital Management in New York told Yahoo Finance.

“Usually, when the Fed is raising short-term interest rates, long-term rates eventually start to decline as growth prospects for the economy slow,” added Hatfield.

What types of bonds should investors consider buying?

Kristen Bitterly, head of North America Investments at Citi Global Wealth Investments (CGWI):

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• “Some of the activity that we’re seeing, maybe the highest level of activity is inflows into 6-month T-bills [with yields of 4.5%],” Bitterly recently noted during CGWI’s 2023 outlook announcement.

• “Beyond that, it’s been very quality fixed income portfolios. So it’s municipals, that depending upon your state are in the high digit single yields … It’s investment grades, and even preferred as part of rounding out that portfolio.”

Bill Merz of U.S. Bank Wealth Management:

• “We favor high-quality investment-grade bonds relative to riskier lower-rated bonds. That applies to both the taxable and non-taxable arenas. Valuations are compelling in high-quality municipal bonds in the intermediate to longer maturity range.”

• “Perhaps the most unique opportunity we see right now are in non-agency mortgage bonds, which are a rare example of a higher-yielding category we remain constructive on. This may seem counterintuitive since home prices started falling and housing market activity is deteriorating in general. However, most non-agency mortgage bonds (especially those issued before 2022) would remain well-secured even if we see a large pullback in home price, incremental yield over Treasuries are near crisis levels, and paltry new supply of non-agency mortgage bonds should act as a tailwind to prices.”

Jay Hatfield of Infrastructure Capital Management in New York:

• “We favor preferred stocks as these securities are trading well below par yet are mostly issued by larger capitalization publicly traded companies that are focused on maintaining strong credit ratings. These securities will benefit from lower long-term interest rates and have attractive yields in the 6-9% range.”

How do you buy bonds?

These are the most common ways to buy bonds:

• The US Treasury: Here you will find Treasury bonds, TIPS, Treasury notes, Treasury bills, and savings bonds.

• Brokerage Account: At brokerage platforms you can select from municipal or corporate bonds and Treasury bond funds.

Ines is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre

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