Why Bonds Aren’t Boring Right Now<br />The dilemma now is that despite a rocky bond market over the last month, bond prices are still so high —<br />and their yields so low — that bonds simply can’t provide much buffering.<br />While stocks typically have a higher return potential, bonds are generally less risky<br />and provide a hedge against a stock market plunge, as they did during the bear market that started in 2007.<br />The prospect of Mr. Taylor as Fed chairman has produced a spate of comments like this one, issued by Capital<br />Economics on Wednesday: “ There is clearly a risk of a more hawkish Fed under Taylor’s leadership.”<br />Then, there are the bond market ripples caused by potential shifts in fiscal policy, including changes in the tax code.<br />As I wrote in a column this summer, standard practice after a big run-up in stocks<br />is to rebalance — meaning, to take profits out of stocks and put them into bonds.<br />That would be negligible for the broad stock market but it’s a lot for bonds and it could presage further difficulties ahead.
