Donāt ignore the Bond Market
Never Turn a Blind Eye to the Bond Market
If youāre a stock-market investor, especially a retired investor, itās easy to ignore the bond market.
Stocks are exciting.
Bonds? Not so much.
But hereās the thing:
You ignore the bond market at your own risk.
The bond market is one of the biggest signals we have for whatās happening with interest rates, inflation, economic growth and, ultimately, where money may flow next.
And you donāt have to own a single bond to pay attention to it.
Why should stock investors care?
Because interest rates matter. A LOT.
When bond yields move significantly, they can affect:
š Stock valuations
š¦ Bank profitability
š Mortgage rates
š° Dividend-paying stocks
š¢ REITs
ā” Utilities
š Growth stocks
šµ The Canadian dollar
š Government borrowing costs
The bond market can sometimes start sending a message before the stock market catches on.
Watch the 10-year
One of the simplest things I keep an eye on is the 10-year government bond yield.
Why?
Because it gives you a pretty good indication of what the market expects for future interest rates, inflation and economic conditions.
If bond yields rise sharply, suddenly a 5% or 6% risk-free return starts looking pretty attractive compared with taking significant equity risk.
That can put pressure on stocks.
On the other hand, if yields fall substantially, money can start looking for better returns elsewhere.
And that can be very positive for equities, REITs and other income-producing investments.
And hereās where it gets interestingā¦
As a retiree, Iām not looking at the bond market because I suddenly want to load up on bonds.
Iām looking at it because I want to understand what the market is telling me.
There is a massive difference.
You can be 100% invested in equities and still benefit from understanding whatās happening in bonds.
Think of the bond market as the weather forecast for your portfolio.
You donāt necessarily have to change your plans every time the forecast changes.
But youād be crazy not to look out the window.
The bottom line
The stock market gets all the attention.
But the bond market is enormous, sophisticated and incredibly important to the financial system.
So donāt turn a blind eye to it.
Watch bond yields. Watch the yield curve. Watch inflation expectations. Watch what the market is pricing in.
Then decide whether it actually changes anything about your investment strategy.
Because sometimes the smartest thing you can do isnāt reacting to the bond market.
Itās simply listening to what itās saying.
Not investment advice ā just another piece of information I think every investor, especially retirees, should have on their radar.
Hang in there!
