5 charts to consider if worried about rising rates

Bond yields are rising again, but this time the outlook for investors is more favorable than in 2022. Higher starting yields provide a cushion against price declines, and market pricing may already anticipate significant Fed rate hikes.

The article suggests that nominal GDP growth could cap further yield increases. With current 10-year yields around 5-5.5% and nominal GDP growth projected at 5-6%, yields may not have much further to climb. Investors should focus on long-term asset allocation rather than market timing, as current yields imply attractive forward returns. Even in the worst historical scenarios, 5-year forward returns for the Bloomberg U.S. Aggregate Index have been positive when starting yields are in this range.

Furthermore, rising yields may improve the risk-reward for owning duration, as yields would need to rise significantly further to offset income earned over 12 months. Finally, while inflation is elevated, it remains below levels that historically cause sharp stock-bond correlations. The key takeaway is that the drivers of rising rates and current market conditions differ significantly from 2022, offering a more constructive outlook for fixed income.