Bonds Are Starting to Act Like Bonds Again
The bond market is emerging from a turbulent few years marked by shifting market conditions and increased volatility.
For your convenience, we’ve also provided a PDF copy of the Chart of the Month | Bonds Are Starting to Act Like Bonds Again
Figure 1 graphs the MOVE Index, a measure of volatility in the U.S. Treasury market. Like the more well-known VIX Index, higher readings signal expectations for more bond market volatility. The bond market was stable in the late 2010s, but when the pandemic struck in 2020, it became more volatile. The MOVE Index spiked above 100 as the pandemic and economic uncertainty made financial markets more volatile, but it quickly retreated as the Federal Reserve cut interest rates to near 0%. The bond market was significantly less volatile in 2021 as the economy reopened and the Fed held interest rates steady, although rising inflation and expectations for Fed rate hikes caused volatility to creep higher.
From early 2022 to mid-2023, the bond market was extremely volatile as the Fed raised interest rates by 5.25%, one of the fastest and steepest rate-hiking cycles in modern history. Bond market volatility, which was already rising due to soaring inflation and Fed policy uncertainty, remained high throughout the entire rate-hiking cycle. The MOVE Index climbed back above 100 and peaked near 150 in late 2022, with bonds behaving as a source of risk rather than diversification. However, since late 2022, bond market conditions have steadily improved. Inflation has cooled, the Fed has cut interest rates by -1.50%, and recession concerns have eased. The MOVE Index is in the low 60s, the lowest since 2021. While there have been periods of volatility around key economic data releases and Fed meetings, the path has been smoother.
Bond market returns followed a similar pattern over the past five years. Figure 2 graphs the quarterly total return of the Bloomberg U.S. Aggregate Bond Index, the standard benchmark for U.S. investment-grade bonds. The index generated positive returns in ten of the twelve quarters from 2017 to 2019, but its returns have been more volatile since 2020. It declined by 1.5% in 2021 and 13% in 2022 as inflation soared to a 40-year high and the Fed aggressively hiked rates, a rare sequence of negative back-to-back annual returns. The volatility and negative returns are consistent with the high MOVE Index. Bond market conditions stabilized in late 2023 and 2024, and in 2025, the bond market regained its footing. The Bond Aggregate produced a positive return in each quarter and gained +7.3% for the full year, its strongest year since 2020.
What does this mean for your portfolio?
The past few years have tested the role of fixed income in portfolios. Today, the combination of lower interest rate volatility and higher starting yields points toward a more familiar risk and return profile. Bonds could still experience volatility if inflation or policy expectations shift again, but they’re behaving more like an asset class that can provide a blend of diversification and income.
Disclosure
The information and opinions provided herein are provided as general market commentary only – not financial advice – and are subject to change at any time without notice. This commentary may contain forward-looking statements that are subject to various risks and uncertainties. None of the events or outcomes mentioned here may come to pass, and actual results may differ materially from those expressed or implied in these statements. No mention of a particular security, index, or other instrument in this report constitutes a recommendation to buy, sell, or hold that or any other security, nor does it constitute an opinion on the suitability of any security or index. The report is strictly an informational publication and has been prepared without regard to the particular investments and circumstances of the recipient.
Past performance does not guarantee or indicate future results. Any index performance mentioned is for illustrative purposes only and does not reflect any management fees, transaction costs, or expenses. Indexes are unmanaged, and one cannot invest directly in an index. Index performance does not represent the actual performance that would be achieved by investing in a fund.
See Full Disclosures Page
Concerns or questions about how your investment portfolio will hold up in the current market environment? Contact Financial Synergies today.
We are a boutique, financial advisory and total wealth management firm with over 35 years helping clients navigate turbulent markets. To learn more about our approach to investment management please reach out to us. One of our seasoned advisors would be happy to help you build a custom financial plan to help ensure you accomplish your financial goals and objectives. Schedule a conversation with us today.
More relevant articles by Financial Synergies:
Blog Disclosures
This content, which may contain security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own financial advisors as to legal, business, tax, and other related matters concerning any investment.
The commentary in this “post” (including any related blogs, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Financial Synergies Wealth Advisors, Inc. employees providing such comments, and should not be regarded as the views of Financial Synergies Wealth Advisors, Inc. or its respective affiliates or as a description of advisory services provided by Financial Synergies Wealth Advisors, Inc. or performance returns of any Financial Synergies Wealth Advisors, Inc. client.
Any opinions expressed herein do not constitute or imply endorsement, sponsorship, or recommendation by Financial Synergies Wealth Advisors, Inc. or its employees. The views reflected in the commentary are subject to change at any time without notice.
Nothing on this website or Blog constitutes investment or financial planning advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. It also should not be construed as an offer soliciting the purchase or sale of any security mentioned. Nor should it be construed as an offer to provide investment advisory services by Financial Synergies Wealth Advisors, Inc.
Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Financial Synergies Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
Any charts provided here or on any related Financial Synergies Wealth Advisors, Inc. personnel content outlets are for informational purposes only, and should also not be relied upon when making any investment decision. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Information in charts have been obtained from third-party sources and data, and may include those from portfolio securities of funds managed by Financial Synergies Wealth Advisors, Inc. While taken from sources believed to be reliable, Financial Synergies Wealth Advisors, Inc. has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. All content speaks only as of the date indicated.
Financial Synergies Wealth Advisors, Inc. is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Financial Synergies Wealth Advisors, Inc. and its representatives are properly licensed or exempt from licensure. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
See Full Disclosures Page Here
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Chart of the Month | Bonds Are Starting to Act Like Bonds Again
Bonds Are Starting to Act Like Bonds Again
The bond market is emerging from a turbulent few years marked by shifting market conditions and increased volatility.
For your convenience, we’ve also provided a PDF copy of the Chart of the Month | Bonds Are Starting to Act Like Bonds Again
Figure 1 graphs the MOVE Index, a measure of volatility in the U.S. Treasury market. Like the more well-known VIX Index, higher readings signal expectations for more bond market volatility. The bond market was stable in the late 2010s, but when the pandemic struck in 2020, it became more volatile. The MOVE Index spiked above 100 as the pandemic and economic uncertainty made financial markets more volatile, but it quickly retreated as the Federal Reserve cut interest rates to near 0%. The bond market was significantly less volatile in 2021 as the economy reopened and the Fed held interest rates steady, although rising inflation and expectations for Fed rate hikes caused volatility to creep higher.
From early 2022 to mid-2023, the bond market was extremely volatile as the Fed raised interest rates by 5.25%, one of the fastest and steepest rate-hiking cycles in modern history. Bond market volatility, which was already rising due to soaring inflation and Fed policy uncertainty, remained high throughout the entire rate-hiking cycle. The MOVE Index climbed back above 100 and peaked near 150 in late 2022, with bonds behaving as a source of risk rather than diversification. However, since late 2022, bond market conditions have steadily improved. Inflation has cooled, the Fed has cut interest rates by -1.50%, and recession concerns have eased. The MOVE Index is in the low 60s, the lowest since 2021. While there have been periods of volatility around key economic data releases and Fed meetings, the path has been smoother.
Bond market returns followed a similar pattern over the past five years. Figure 2 graphs the quarterly total return of the Bloomberg U.S. Aggregate Bond Index, the standard benchmark for U.S. investment-grade bonds. The index generated positive returns in ten of the twelve quarters from 2017 to 2019, but its returns have been more volatile since 2020. It declined by 1.5% in 2021 and 13% in 2022 as inflation soared to a 40-year high and the Fed aggressively hiked rates, a rare sequence of negative back-to-back annual returns. The volatility and negative returns are consistent with the high MOVE Index. Bond market conditions stabilized in late 2023 and 2024, and in 2025, the bond market regained its footing. The Bond Aggregate produced a positive return in each quarter and gained +7.3% for the full year, its strongest year since 2020.
What does this mean for your portfolio?
The past few years have tested the role of fixed income in portfolios. Today, the combination of lower interest rate volatility and higher starting yields points toward a more familiar risk and return profile. Bonds could still experience volatility if inflation or policy expectations shift again, but they’re behaving more like an asset class that can provide a blend of diversification and income.
Disclosure
The information and opinions provided herein are provided as general market commentary only – not financial advice – and are subject to change at any time without notice. This commentary may contain forward-looking statements that are subject to various risks and uncertainties. None of the events or outcomes mentioned here may come to pass, and actual results may differ materially from those expressed or implied in these statements. No mention of a particular security, index, or other instrument in this report constitutes a recommendation to buy, sell, or hold that or any other security, nor does it constitute an opinion on the suitability of any security or index. The report is strictly an informational publication and has been prepared without regard to the particular investments and circumstances of the recipient.
Past performance does not guarantee or indicate future results. Any index performance mentioned is for illustrative purposes only and does not reflect any management fees, transaction costs, or expenses. Indexes are unmanaged, and one cannot invest directly in an index. Index performance does not represent the actual performance that would be achieved by investing in a fund.
See Full Disclosures Page
Concerns or questions about how your investment portfolio will hold up in the current market environment? Contact Financial Synergies today.
We are a boutique, financial advisory and total wealth management firm with over 35 years helping clients navigate turbulent markets. To learn more about our approach to investment management please reach out to us. One of our seasoned advisors would be happy to help you build a custom financial plan to help ensure you accomplish your financial goals and objectives. Schedule a conversation with us today.
More relevant articles by Financial Synergies:
Blog Disclosures
This content, which may contain security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own financial advisors as to legal, business, tax, and other related matters concerning any investment.
The commentary in this “post” (including any related blogs, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Financial Synergies Wealth Advisors, Inc. employees providing such comments, and should not be regarded as the views of Financial Synergies Wealth Advisors, Inc. or its respective affiliates or as a description of advisory services provided by Financial Synergies Wealth Advisors, Inc. or performance returns of any Financial Synergies Wealth Advisors, Inc. client.
Any opinions expressed herein do not constitute or imply endorsement, sponsorship, or recommendation by Financial Synergies Wealth Advisors, Inc. or its employees. The views reflected in the commentary are subject to change at any time without notice.
Nothing on this website or Blog constitutes investment or financial planning advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. It also should not be construed as an offer soliciting the purchase or sale of any security mentioned. Nor should it be construed as an offer to provide investment advisory services by Financial Synergies Wealth Advisors, Inc.
Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Financial Synergies Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
Any charts provided here or on any related Financial Synergies Wealth Advisors, Inc. personnel content outlets are for informational purposes only, and should also not be relied upon when making any investment decision. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Information in charts have been obtained from third-party sources and data, and may include those from portfolio securities of funds managed by Financial Synergies Wealth Advisors, Inc. While taken from sources believed to be reliable, Financial Synergies Wealth Advisors, Inc. has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. All content speaks only as of the date indicated.
Financial Synergies Wealth Advisors, Inc. is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Financial Synergies Wealth Advisors, Inc. and its representatives are properly licensed or exempt from licensure. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
See Full Disclosures Page Here
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