“It’s a meltdown.”

That was the subject line of a recent Evening Briefing email that I received from the investment media firm Bloomberg. The topic in the brief was the bond market. I happen to think that “meltdown” is a rather dramatic word choice from the strategist quoted in the piece, but let’s set that aside for the moment. Bonds are typically the more conservative portion of an investor’s portfolio, the component designed to mitigate against the wide fluctuations one might see in the stock market. So, this topic deserves some attention.

In simplest terms, bonds represent lending your money out at a given interest rate and for a stated period. Issuers (borrowers) include municipalities, large corporations, and governments around the world. Assuming the bond reaches maturity and the issuer has made all its interest payments, you will receive back precisely the amount that you signed up for when purchasing the bond. However, that does not mean that prices of bonds do not fluctuate prior to maturity.

One of the causes of bond price fluctuations is the change in market interest rates. Bond prices are inversely related to bond yields, the percentage income that bonds pay to investors. When interest rates increase, bond prices decline.

After a year of declining interest rates in 2025, investors came into this year with an expectation of more of the same. It hasn’t turned out that way. The conflict in Iran has led to higher energy prices and contributed to a rebound in inflation. Another key factor is ongoing federal budget deficits, which require the issuance of substantial amounts of new debt. As of late September, the yield on a 10-year US Treasury note rose to 5.25 percent, a level not seen in nearly two decades. Through quarter-end of this year, the total return for a popular benchmark of intermediate-term bonds¹ was -2.9 percent.

What Have You Done for Me Lately?

If 2026 closes out as a negative year for bonds, it won’t be the only one in recent memory. Bonds finished in the red in 2021 and had their worst year in the last century in 2022. We could, therefore, look at the last six years as part of a broader trend. Four decades of declining interest rates ended abruptly in 2021. The following period through the present day has been a readjustment to more “normal” levels of interest rates.

That readjustment has been painful for bond investors. The largest bond fund in the world by assets under management is the Vanguard Total Bond Market Index Fund. The 10-year total return for that fund through September 30 has been about 1 percent (compound annualized)—nearly a “lost decade” for bonds that happened to coincide with a historic bull market for stocks.

As a result, we find that many investors today are unenthusiastic about bonds. The track record over the past decade seemingly supports their position. However, the facts have changed. As the investment cliché goes, past performance may not be indicative of future results.

Expected returns for bonds are now meaningfully higher. As the chart below shows, the yield on 10-year US Treasury securities a decade ago was approximately 1.5 percent. Investors back then had every reason to expect low returns for bonds, and low returns are what they got. The yield on the same investment now is above 5.2 percent. It is possible today to build a high-quality intermediate-term bond portfolio with an expected return of between 5 and 6 percent. And if inflation is a concern, investors could buy US Treasury Inflation-Protected Securities, which will deliver a return of approximately 3 percent per year over and above the future rate of inflation.

Kissing the Frog

Around a decade ago, the acronym “TINA” started to become popular in the financial media. TINA stands for “There is No Alternative”. The saying meant that no alternative to investing in stocks existed at the time because prospective returns on bonds were not attractive. The adjustment that I might suggest to fit today’s reality is more like “TIANA”—There is an Alternative. The cumulative readjustment in market interest rates over the past six years has made bonds a much more compelling portfolio building block.

The notion of an alternative suggests a binary choice, whereas the more appropriate frame is that both stocks and bonds have roles to play in a diversified portfolio. Sustained periods of significant outperformance for one versus the other usually sets up an opportune time to rebalance.

Rebalancing is one of those investing axioms that sounds easy and obviously positive until it comes time to execute. Who doesn’t like buying low and selling high? In practice, rebalancing often requires embracing asset classes that had been out of favor and trimming star performers. In fairytale terms, the out of favor asset class is the frog that later becomes a prince. Bonds are today’s market frog²—poor past returns, valid concerns about future risks (deficit, inflation, etc.), and thoroughly unexciting in relation to high-flying AI stocks.

Yet discipline is important because things change. Six years of rising interest rates have made bonds more attractive. More than a decade of stellar US stock returns has made US stocks, at current prices, relatively less interesting. We are looking ahead, not looking back.

PRINT Quarterly Insights – October 2026

¹ Bloomberg US Aggregate Bond Index. Average bond maturity of approximately eight years. Shorter-term bonds are less interest rate sensitive and have, therefore, experienced a lesser decline in market value.

² In case you were wondering, the picture is of Princess Tiana from Disney’s The Princess and the Frog.