How investors can protect portfolio as rates rise

There’s been a lot of noise in the bond market lately, and with the 10-year treasury hitting its highest level since 2023 on Wednesday, what’s giving investors pause isn’t going away.

Between planned Treasury buybacks and the Federal Reserve’s latest announcement signaling a possible rate hike that puts the agency at odds with President Donald Trump’s desires, many bond owners are scratching their heads about what’s next. This comes amid broader inflation concerns weighing on bondholders, a roughly $2 trillion federal deficit, and over $40 trillion in government debt that doesn’t show signs of easing. 

“Tuning out the noise is one of the hardest things for anyone to do,” said Ian Toner, partner and head of investments in the institutional consulting practice at New York-based Cerity Partners. Nonetheless, he cautions investors who are considering moving money based on headlines to think hard about whether something has fundamentally changed in the economy or the market on a long-term basis or whether they’re reacting to short-term news flow. “Most news is short-term, and most portfolios should be long-term. That intersection is emotionally hard, but really important to drive successful results,” he said.

Financial advisors and investment strategists say there are plenty of options for investors to ride out bond market uncertainty rather than rush into potentially bad decisions.

Yields are higher across the curve, and despite Trump administration attempts to project calm, it can spook the markets. But for buy-and-hold investors, higher yields can be a good thing. “To me, that’s a positive sign for future returns because the yields are now higher for the bond market, generally speaking,” said Marta Norton, chief investment strategist at Denver-based Empower. “I do not agree that bonds are dead. They may not have the tailwinds that they had in past decades, but they still have a role for investors and portfolios,” Norton said.

Don’t run from bonds, diversify fixed-income maturities

As long as an investor has a diversified plan in the fixed-income space, most of the uncertainty will likely stabilize and become much clearer, Toner said. A diversified portfolio can include a broad market ETF such as the iShares Core U.S. Aggregate Bond ETF (AGG), a short-duration ETF, treasury inflation-protected securities (also known as TIPS), corporate debt and some floating-rate debt, strategists said.

To be sure, the AGG has suffered a massive drawdown, experiencing steep losses in the period since 2020 even with the bond coupon reinvested. That is because when the near-zero interest rate environment of the pandemic reversed, sending yields…