Bonds regain a case

A bond that yields 4% to 5% is no longer a placeholder. As of April 9, 2026, the United States 10-year Treasury yield was about 4.27%, which is a very different starting point from the 0.50% area seen in mid-2020. (fred.stlouisfed.org, morningstar.com) That starting point changes the math. Morningstar says fixed-income returns have a tight historical link to starting yields over the next decade, which means today’s bond income is doing more of the work up front. (morningstar.com) A bond is just a loan with a schedule. If you buy one near a 5% yield and hold it, a large share of your return comes from the coupon payments you can already see, unlike stocks, where the next five years depend much more on earnings growth and valuation changes. (investor.vanguard.com, aqr.com) That is why bonds look different in a recession when yields start high. AQR says long-horizon bond returns are “well anchored” to starting yields, while equity returns can swing with sentiment and changing growth stories. (aqr.com) The recession part matters because central banks usually cut short-term rates when growth weakens. The Chartered Financial Analyst Institute notes that past Federal Reserve easing cycles shaped recessions and market leadership, and falling rates can lift existing bond prices on top of the income investors are already collecting. (rpc.cfainstitute.org) The yield curve is the market’s way of comparing short rates with long rates. The Federal Reserve Bank of New York says that spread has long been used to estimate the probability of a United States recession 12 months ahead, which is why bond investors watch it like a weather map. (newyorkfed.org) This is a sharp reversal from 2020 and 2021. When the 10-year Treasury yielded around 0.50%, Morningstar said there was almost no cushion if rates rose, so bond investors had little income to offset price declines. (morningstar.com) By mid-2024, Vanguard said the “initial conditions” for bond investors were far more favorable than they had been in mid-2021. Its point was simple: higher coupons give investors a thicker shock absorber when rates move around. (corporate.vanguard.com) That showed up in actual returns in 2025. Vanguard reported that the Bloomberg United States Treasury Index returned 6.32% in 2025, while higher starting yields and falling front-end rates helped broad fixed income post gains across sectors. (corporate.vanguard.com) Stocks can still beat bonds over long stretches, but the gap is not guaranteed when stock valuations are rich and bond yields are near 4% to 5%. The Federal Reserve said in late 2025 that equity markets had rebounded from volatility, while AQR’s 2025 capital market assumptions argued that expected returns for bonds had risen and equity risk premia had become slimmer. (federalreserve.gov, aqr.com) So the case for bonds now is not nostalgia for the old 60/40 portfolio. It is that a Treasury yielding roughly 4.3% in April 2026 can offer visible income, possible price gains if rates fall, and a more predictable five-year setup than stocks usually do at the start of a slowdown. (cnbc.com, fred.stlouisfed.org, morningstar.com)