U.S. Treasury Secretary Scott Bessent, who recently announced plans to aggressively buy back bonds as a way to combat rising interest rates, spoke to reporters while attending the G20 Finance Ministers and Central Bank Governors Meeting in Asheville, North Carolina, on August 31, 2026.
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There’s been a lot of noise in the bond market lately. 10 years treasury On Wednesday, the stock hit its highest since 2023, but the factors holding investors back persist.
Between the planned Treasury buybacks and the Fed’s latest announcement hinting at the possibility of interest rate hikes against President Donald Trump’s wishes, many bondholders are wondering what will happen next. This comes amid widespread inflation concerns weighing on bondholders, a nearly $2 trillion federal deficit and more than $40 trillion in government debt that shows no signs of easing.
“Turning off the noise is one of the most difficult things for anyone to do,” says Ian Toner, a partner and head of investment in the institutional consulting practice at New York-based Cerity Partners. Nevertheless, he cautions investors looking to move money based on headlines to think carefully about whether there have been any fundamental changes in the economy or markets over the long term, or whether they are reacting to short-term news trends. “Most news should be short-term, and most portfolios should be long-term. That intersection is emotionally difficult, but critical to success.”
Financial advisors and investment strategists say investors have plenty of options to navigate the uncertainty in the bond market, rather than rushing into potentially wrong decisions.
Yields are rising across the curve and could spook markets despite the Trump administration’s attempts to project calm. But for buy-and-hold investors, higher yields can be a good thing. “I think this is a positive sign for future returns because bond market yields are generally higher than they are now,” said Marta Norton, chief investment strategist at Denver-based Empower. “I don’t agree that bonds are dead. Bonds may not have the tailwinds of the past few decades, but they still have a role for investors and portfolios,” Norton said.
Don’t run away from bonds, diversify your bond maturities
As long as investors have diversified plans in the fixed income space, most of the uncertainty is likely to stabilize and become more clear, Toner said. A diversified portfolio could include broad-market ETFs such as the iShares Core U.S. Aggregate Bond ETF (AGG), short-term ETFs, Treasury Inflation-Protected Securities (also known as TIPS), corporate bonds and some floating-rate bonds, strategists said.
Indeed, AGG suffered huge drawdowns and suffered huge losses in the post-2020 period despite reinvesting bond coupons. That’s because the near-zero interest rate environment caused by the pandemic has been reversed, and bond prices have come under pressure as yields have steadily risen. Additionally, AGG is heavily concentrated in government bonds at approximately 45%, which could continue to be a headwind. But with yields as high as they are today, AGG has what is known as a much greater “cushion” against bond price fluctuations than it did when interest rates were near zero.
Some market luminaries warn that interest rates will likely continue to rise, at least in the short term, due to uncertainties related to government debt and the Fed’s policies in combating inflation, making it a mistake to have any duration exposure to Treasuries at all. More investors are turning to ultra-short-term bond ETFs, which saw $12.8 billion in inflows in July, according to Morningstar Direct. According to financial strategists, these funds offer slightly higher yields than money market ETFs and mutual funds, but are only slightly more risky. Another option in the short-term fixed income ETF universe is the PIMCO Low Duration Fund (PTLDX). It has a duration range of 1 to 3 years and an adjusted expense ratio of 0.46%.
Fixed income strategists look for spots of strength within the broader fixed income market further down the maturity curve.
Mark McCarron, chief investment officer at Philadelphia-based Wescott Financial Advisory Group, favors bonds with durations of three to five years or less. “Bond yields are likely to continue rising until inflation and deficit containment are achieved,” he said. “We’re just trying to maintain high quality, short term and protection.”
Eric Kratz, chief investment officer and co-head of wealth at Arena Private Wealth in Chicago, buys 5- to 7-year U.S. Treasuries with yields ranging from 4.51% to 4.63%. “I think it’s a good middle ground in a way,” he said.
iShares 20+ Year Government Bond ETF 2026 Performance.
Consider corporate bond opportunities
Mr. Kratz said he was also buying high-quality corporate bonds, looking for opportunities above the 5% range. He said it’s a “good trade-off” because it doesn’t carry much more risk than U.S. Treasuries. For senior debt, we are looking for opportunities to exceed 6%.
Ken Roban, a partner and managing director at Steward Partners’ Reservoir Road Wealth Management in Stamford, Conn., said he is buying short-term corporate bonds. He uses actively managed ETFs such as the Dimension Short Duration Fixed Income ETF (DFSD), which has a net expense ratio of 0.16% and held 1,593 stocks as of July 31. Roban also likes the Neuberger Berman Short Duration Income ETF (NBSD), which has a net expense ratio of 0.35% and held 1,104 stocks as of Aug. 31.
He said he is currently sticking to a short-term corporate bond strategy, but is considering switching to a long-term corporate bond strategy. “We’re waiting for the U.S. government to show some hint of fiscal restraint. We’re watching that very closely,” he said.
Mr. Kratz is also looking at opportunities in short-term floating rate bonds that reset when interest rates rise, allowing investors to receive more money for their bonds. He focuses on high-quality issuers with senior debt rated A or above. Here’s an idea: That means locking in about 5% for six months. If it resets within 6 months and doesn’t mature or get called, you could potentially earn 6% on a new coupon. “To me, that’s pretty appealing,” he said.
Hedge against inflation with gold and TIPS
Roban has begun purchasing TIPS for its clients’ retirement accounts, tiering the accounts based on maturities of five to 15 years.
He said it would be a good deal if inflation stayed in the 3-4% range. You earn a real return of approximately 2.4%, and when your TIPS mature, you receive the greater of the inflation-adjusted price or principal. It will never be less than the principal amount.
Hedging products containing gold is also an option. Investors concerned about fiscal policy and geopolitics may consider: gold The fixed income portion of the portfolio is 5% to 10%, Norton said. However, note that gold hasn’t been the hedging tool people expected it to be over the last year, so it should still be taken lightly. “There’s an unpredictability to the product,” she says.
When selling bonds, do not convert them into cash
Jeff Mortimer, founding partner and chief investment officer at Elyxium Wealth in Beverly Hills, Calif., has been shifting money away from bonds for several months. His firm is also looking at other income-oriented investments, such as merger arbitrage ETFs and actively managed merger arbitrage funds. Merger arbitrage exploits the price difference between merger announcement and merger completion, yielding returns that are uncorrelated with interest rate risk. According to Morningstar, this strategy produces a bond-like risk/return profile outside of the bond market, and notes that “like a bond coupon, upside is limited, but the potential for downside loss if the trade is abandoned is substantial.”
“We believe the bull market in long-term bonds is over, and we believe investors should shift their investment approach to reduce fixed income exposure, shorten duration, and diversify into other asset classes to manage risk from rising debt and interest rates. These asset classes may include commodities and liquid alternative assets,” Mortimer said in a recent LinkedIn post.
While some investors may be tempted to move completely from bonds to cash, McCarron advises against doing so, as cash cannot beat inflation. Instead, he takes a more balanced approach. “I want to keep a certain amount of duration in my portfolio, considering yield and portfolio balance in case of an economic slowdown, but I don’t want it to be too long from a position standpoint,” he said.
