Fiduciary John Mateyko, APMA®, WMCP™, RICP® On Bonds, Inflation, And A Potential Recession



Lately, due to the increasing economic uncertainty and conversations around recession, several clients have reached out with an important question: Are bonds still a good investment during a recession, especially with interest rates on the rise?

The answer isn’t a simple yes or no—it depends on several factors. If you’ve been wondering the same, this article offers a clear, foundational understanding of how bonds behave in the current market and which types may still offer value.

Understanding the Basics

What Are Bonds?
Bonds are essentially loans made by investors to governments or corporations. In return, the issuer promises to pay regular interest and return the principal upon maturity.

What Is a Bond Price?
The bond price reflects its current market value. Generally, when interest rates rise, bond prices fall.

Why Do Bond Prices Drop When Interest Rates Rise?
It’s all about supply and demand. For example, if you buy a bond for $1,000 at a 5% yield, and market interest rates later rise to 5.5%, new investors will prefer the higher-yield bonds. As a result, your 5% bond will drop in value, perhaps to around $980, to remain competitive.

Are Bonds Still a Good Investment?

Despite these fluctuations, fixed-income investments still play a key role in diversified portfolios. While traditional bonds may not perform well during periods of rising interest rates, certain types are designed to better handle inflationary pressures and rate hikes. Below are a few noteworthy options:

Bond Options in a Rising Interest Rate Environment

1. Treasury Inflation-Protected Securities (TIPS)
TIPS are U.S. Treasury bonds whose principal adjusts with inflation (based on the Consumer Price Index). Investors receive a fixed interest rate, but since the principal itself increases with inflation, the total payout rises accordingly.

  • Terms: 5, 10, or 30 years

  • Interest: Paid every six months

  • Investment Range: $100 to $10,000,000

  • At maturity, investors receive either the adjusted principal or the original, whichever is higher.

2. Series I Savings Bonds
These savings bonds are designed to keep up with inflation by adjusting their rates semiannually.

  • Interest: Compounded every six months

  • Availability: $25 to $10,000 annually per Social Security number (electronic format)

  • Maturity: Earn interest up to 30 years, with early redemption possible after 12 months

3. Fixed-Income Mutual Funds
Professionally managed bond mutual funds offer exposure to hundreds or thousands of bonds. These funds provide diversification by bond type, maturity, and credit quality. This approach can help reduce risk while targeting income from different segments of the bond market.

4. Short-Term vs. Long-Term Bonds
In inflationary periods, short-term bonds generally hold up better since they mature quickly, allowing reinvestment at higher rates. However, 2022 brought an unusual twist—short-term rates rose faster than long-term rates, creating an inverted yield curve, which is often a sign of a looming recession.

Short-term bonds also offer more flexibility, allowing investors to react quickly to market changes, though a comprehensive financial analysis is always recommended before shifting strategies.

Final Thoughts

Navigating the bond market during inflation and rising interest rates requires a strategic, well-informed approach. While traditional bonds may struggle in this climate, alternatives like TIPS, Series I Bonds, and diversified mutual funds can still provide value.

There is no one-size-fits-all answer. Each investor's portfolio and goals are unique, and tailored advice from a financial professional can help determine the best path forward.

About John Mateyko, APMA®, WMCP™, RICP®

John Mateyko is a leading voice in the financial planning world, known for his client-first philosophy and forward-thinking strategies. Through his firm, IDEX Financial, John is redefining retirement planning by placing personalization at the core of financial strategy. He helps clients build roadmaps that reflect their individual goals, family needs, and financial values—ensuring they enter retirement with clarity and confidence.

His mission goes beyond numbers. He aims to empower individuals with knowledge and strategies that create financial security and meaningful life experiences.

About IDEX Financial

IDEX Financial, a proud member of the PeachCap Family Office, stands out for its impartial, research-driven approach to wealth management. The firm prioritizes education, believing that informed clients make empowered decisions.

With a commitment to long-term relationships and proactive financial strategies, IDEX helps clients adapt to life’s changing financial landscape and seize opportunities that truly enhance their financial future.

Location: United States

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