A tough quarter for bonds

September capped a brutal third quarter for bonds, with yields jumping 54 basis points at the 2- and 10-year maturities. This pushed the Bloomberg US Treasury index down 3.04% for the quarter. Solid economic growth, persistent deficits, and Fed tightening drove these moves.

While the factors causing the sell-off haven't reversed, the 10-year Treasury yield now sits above expected nominal GDP growth. This suggests yields may have cheapened enough, potentially marking the worst of the sell-off. However, market volatility remains high, and other sovereign bond markets are also seeing rising yields.

The article suggests that while near-term price action is unsettled, higher yields now present an opportunity for investors to consider rebalancing into fixed income. Federated Hermes adjusted their portfolio during Q3, adding exposure to mortgages and emerging markets while holding duration short. They remain focused on active opportunities in this higher-yielding environment for Q4.