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Bonds, Pounded by Inflation Concerns, Get a Lift—From Inflation

With the Fed poised to aggressively raise rates, rising yields are making Treasuries increasingly attractive.
U.S. Federal Reserve Chairman Jerome Powell at a Senate hearing in March.

U.S. Federal Reserve Chairman Jerome Powell at a Senate hearing in March.

Photographer: Jonathan Ernst/Reuters/Bloomberg

As inflation fears surge, holders of U.S. government debt are having a rough ride. Investors have abandoned the market en masse, making the first quarter the worst on record and devastating the value of bond portfolios. But now fixed-income returns are starting to get a lift from that same boogeyman.

With the Federal Reserve battling inflation by raising rates and signaling more hikes to come, prices of bonds have fallen. And when the price of a bond falls, its yield—the return investors expect to get from holding it—goes up. In mid-April, for the first time in two years, yields on some government debt that’s adjusted for inflation began to fully offset the toll of rising prices, albeit briefly. “Bonds and credit both look a lot more attractive now,” says Raymond Lee, chief investment officer at Torica Capital in Sydney.