Where are we in 2026?

So, where are we now that we're in 2026? The 10-year Treasury is sitting around 4.6% as I record this. That's up from about 4% earlier in the year. Because inflation data has come in hotter than expected. You know this if you've been to the gas pump or or you've been to the grocery store recently. And long-term yields have been stubborn, right? Sticky is the word that bond strategist keep using. Kathy Jones, who runs fixed income strategy at Charles Schwab, she expects the Federal Reserve to cut these short-term rates a couple more times, which would put the Fed funds rate at somewhere in the three to three and a half range over the next year, but they expect the 10-year to hold at 4 plus percent because of a couple of reasons, right?

Because of sticky inflation, rising Treasury supply to fund federal deficits, and rising global yields. And all that is going to continue to make borrowing more expensive. One of the analysts at Fidelity points to something called the term premium coming back. In plain English, the market is demanding more compensation for holding longer-dated bonds. After years of investors basically lending the government money for free, at least long-duration bonds, right?

For free, right? Very little return. Now people are demanding a bit of a premium. They want to get paid. So what does all this mean for you? And I know this is a bit complex, and I may have gone a little too deep. I I try to balance making sure you have all the information you need without getting too overly complex. It's a hard balance. Ultimately, what it means for you is that bonds are paying a real return again, right?

You can actually make money from a bond yield. And the case for owning them in 2026 is, in my opinion, and is more about income and not about big price gains. The coupon payments right now are doing most of the work. Remember, you get paid twice a year. The income is more of the reason you want to hold bonds and also protection against volatility. Those are the reasons you want to hold bonds, less because you think you're going to get some great price appreciation like you did during the '80s and '90s. And that's a very different situation than when we were in 2020 or 2021, when yields were near zero and there was nothing to do but hope that rates would not go up, right?

Now you actually have a decent return on bond yields, even though you're probably not going to get a large price appreciation over the next couple of years. So this is the part I really want you to focus on. And if you kind of zoned out while I was talking about everything else, that's fine. It was a lot of information, but you need to understand that all bonds are not created equal.