Bonds are sometimes an overlooked asset class. They don’t have the allure of quick, sizable gains that stocks do, but they also don’t have the volatility seen in equities.

Bonds are essentially loans that the purchaser makes to the government, corporations, or municipalities when they need capital. The principal is paid out at a maturity date determined when the product is purchased, and the bond accrues modest interest over that period.

However, investing in the treasury market requires patience and a long-term financial plan. 2022 saw the worst bond performance in several decades, as the continued interest rate hikes hurt bond prices.

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Typically, interest rate cuts drive the price of bonds up, decreasing the yield of bonds.

We spoke with Carley Garner, author, strategist, and senior commodity broker, to discuss how investing in bonds can enhance your investment portfolio and why investors should consider buying them before the next anticipated interest rate cut.

Bonds offer predictability during uncertain times

Experts note that despite the September interest rate cut, rates are still historically high compared to the last two decades. This provides a window for curious investors to consider entering the treasury market, particularly high-quality bonds that offer modest returns with much lower volatility.

Short-term yields are expected to decrease faster than long-term yields in the coming months, making bonds a safer and more appealing option. Garner highlights that bonds' long-term maturity can act as an alternative for investors.

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“I've been around for a while — I've lived through the financial crisis,” she said. “I'm seeing a lot of red flags on the tape that remind me of 2007 and 2008. So what I've done with my personal portfolio is I've allocated a very big percentage of it towards treasuries as a safety play.”

Garner notes the importance of the 10-year Treasury Yield, the interest rate the government pays to borrow money for an entire decade. This measurement serves as an indicator for other interest rates and economic conditions.

“I believe that at this point, depending on your timing, the 10-year Treasury note you can get is anywhere from 4% to 5%,” she continued. “You get paid to wait — you get that 4% to 5% regardless of what happens in the markets.”