When bond yields fall, investors get nervous. Quick refresher: A ‘yield’ is the expected reward you’ll eventually earn from buying a bond. Here’s what this news could mean for your wallet.
The economy might be running out of steam. When a lot of people buy bonds all at once, prices go up. Supply, meet demand. That’s happening now. Investors are stressing about things like the economy getting tired and coronavirus outbreaks. So they’re selling stocks and buying bonds, which are considered a safer bet. That makes bond yields go down. Economists like to remind people that declining bond yields — and other unusual bond market moves — is one sign that a recession could be around the corner.
Your portfolio might be dragging. The domino effect of more money flowing from stocks to bonds is that stock prices drop. If you own stock, that means your investments are probably feeling some pain, too.
theSkimm: Falling bond rates is one sign of a weakening economy. But there are plenty of other ways to gauge how the economy is doing. Like looking at the job market and consumer outlook ratings. Both are pretty healthy right now.
And on the bright side, some investors (the kind with strong stomachs) get excited when stock prices drop. That’s because in the past, they’ve always rebounded. So investing more when prices are low could mean you’re buying stocks at a discount. It’s like a pre-spring break sale...for your investments.