Asset Allocation
What a Rough Quarter for Bonds Means for Asset Allocators
May 09 2022Key Insights
- In the first quarter of 2022, the bond market had its worst three-month performance in more than 30 years.
- Although bonds usually have an inverse relationship to stocks, rising interest rates and inflation shocks are typically headwinds for both asset classes.
- Our Asset Allocation Committee is slightly overweight to bonds, favoring higher-yielding sectors including bank loans, high yield bonds, and short-term TIPS.
Investors have different investment objectives, time horizons and risk appetites and not all investments are suitable for all investors.
Alternative Investment Strategies risks- Strategies such as absolute return involve risks, including possible loss of principal and are not suitable for all investors. There is no assurance that a strategy's investment objective will be achieved. These strategies may utilize derivatives. Additionally, they may utilize short positions. Short sales are considered speculative transactions with potentially unlimited losses. The strategies may use leverage which can magnify the effect of losses. Alternative investments may be more difficult to value and monitor. Certain alternative investment vehicles are illiquid, require certain investor qualifications be met and/or have higher investment minimums and fees than traditional investments, amongst other differences.
Diversification cannot assure a profit or protect against loss in a declining market. Actual outcomes may differ materially from expectations.
Fixed-income Risks- Fixed income securities are subject to credit risk, liquidity risk, call risk, and interest-rate risk. As interest rates rise, bond prices generally fall. Investments in high-yield bonds involve greater risk of price volatility, illiquidity, and default than higher-rated debt securities. In periods of no or low inflation, other types of bonds, such as US Treasury Bonds, may perform better than Treasury Inflation Protected Securities. Investments in bank loans may at times become difficult to value and highly illiquid; they are subject to credit risk such as nonpayment of principal or interest, and risks of bankruptcy and insolvency.
Additional Disclosures
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Important Information
This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.
The views contained herein are those of the authors as of April 2022 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.
This information is not intended to reflect a current or past recommendation concerning investments, investment strategies, or account types, advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Please consider your own circumstances before making an investment decision.
Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.
Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.
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