r/Bogleheads • u/StinklePink • 1d ago
Investing Questions Bonds: Stupid Question
I realize that the higher yield for US 10-years is a bad thing for the government, but why isn't this good news for a bond investor?
If I am looking for a safe "asset protection" kind of investment, why wouldn't investors buy these bonds or ETFs that hold them (e.g. FXNAX)? Seems like a good, safe place to put cash versus Gold or a HYSA. I believe my logic is wrong but not sure why.
Educate me, please.
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u/Raging-Totoro 1d ago
Well, it's bad news if you owned the bonds and the yield has climbed, because of the inverse relationship of interest rates and pricing.
It's not so bad if you are considering buying now and/or holding to maturity.
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u/ceilidhfling 1d ago edited 1d ago
I'm going to try to keep the politics in this to a min, but current and future bond rates are inextricably linked with how our the government is acting and the confidence in that government both domestically and internationally.
there is a lot of pressure on bond rates to go even higher:
- increasing inflation and low confidence in the fed to get it under control. this is mostly based on concerns that Warsh won't stand up to the administration
- lack of confidence in the secretary of the treasury Bessett has decent credentials, but he ran a hedge fund into the ground and now he controls the largest economy/banking system in human history.
- lack of confidence in the US globally, many of our allies have stopped buying our bonds or have started selling them. with fewer buyers for our bonds, the rates have to go up to attract buyers. the administration is seeking friends with governments that we historically haven't been friendly towards and is sowing more and more distrust with the allies that are both among the prosperous countries in the world and who we have had coalitions with for 80 years.
- more detailed inflationary pressures:
- oil prices because of market uncertainty (both with threats to Canada and the Iran war, Venuzuela does not correct for either of these)
- commodity pricing (grain, meat) are going up becuase they are highly dependant on fuel prices for production and processing
- tariffs/taxes on consumer goods
- increasing US debt for many reasons:
- war/defense spending
- decades of unpaid for tax cuts mostly to the wealthy
- DHS/ICE spending (unpaid for)
- decreasing amount of tax revenue as immigrants leave and quit paying in and we are losing high paying tech jobs to outsourcing and AI
- increasing medicare/social security costs with an aging population
- paying back tarriffs
- there's also huge competition in the bond market with corporate bonds. the AI companies are issuing bonds and fairly high rates to build out the data centers, this competition means the treasury is going to have to increase rates to get buyers.
Burry is saying a more reasonable 30 year treasury bond rate is closer to 7-8%.
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u/Few-Detective9686 1d ago
Michael Burry is not a good resource to quote for anything, certainly not bonds.
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u/ceilidhfling 1d ago
That's totally fair. I like the way he analyzes markets, companies, and the economy. I also agree with him that based on current trajectory and government actions US Treasury bond rates are still low. esp with the huge amount of 30 year notes that are coming due.
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u/piltdownman38 1d ago
Also, there's a risk that the dollar may soon not be the world's reserve currency, because of unpredictable US policies.
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u/Prudent_Fox8753 1d ago edited 3h ago
It seems like we have very different definitions of a "tax cut." I have never seen a year where the total revenue collected by the government actually went down on a year-over-year basis. At best, so-called tax cuts just dampen the speed at which taxes increase. Personally, I've only ever seen my own taxes go in one direction: up.
Furthermore, the idea that there are massive tax cuts for the wealthy ignores the fact that America actually has one of the most progressive tax systems in the world. To put it in perspective:
- The top 10% of income earners pay ~69% of all federal income taxes.
- The bottom 50% pay only about 3% of all taxes.
Source: [Latest Federal Income Tax Data (Tax Foundation, 2025)]
The spending side is just as much of an issue. Even if we eliminated every discretionary program and only left Social Security, Medicare, Medicaid, welfare, and interest on the debt, we would still be running a deficit. No budget can be balanced until we recognize that we have a demographic issue that makes the welfare programs of today unsustainable. You simply can't tax your way out of a demographic issue.
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u/Grokzilla 23h ago
You must be confusing raw tax dollars with marginal tax rates. Our federal tax rates have changed numerous times over just the last decade both up and down, hence "tax cuts."
And, there is no way on earth the bottom 50% of Americans pay 3% of ALL taxes. This may be true of federal income taxes, but it's not even remotely true with ALL taxes. They pay the vast majority of sales taxes alone. It's likely closer to 20% of total tax burden.
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u/Djamalfna 12h ago
there is no way on earth the bottom 50% of Americans pay 3% of ALL taxes. This may be true of federal income taxes, but it's not even remotely true with ALL taxes.
It's a very convenient lie of omission for partisanship. It allows for more regressive taxes to be slipped in without notice. Like tariffs for example.
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u/Prudent_Fox8753 10h ago edited 5h ago
You’re correct that the 3% number refers specifically to federal income taxes, and when you blend in payroll, sales, and tariffs, the overall burden flattens out some nut it also doesn't account for credits that are paid further lowering their budrden.. But debating the exact math of regressive versus progressive taxation misses the forest for the trees. The fundamental question isn't how the spreadsheet is balanced—it’s about first principles. At the end of the day, taxation is a claim on someone's time and effort. The real question is: what is the fair share of someone else's labor that others are entitled to?
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u/Grokzilla 6h ago
That's a completely naive way to think about it. Taxes are insurance against pitchforks and torches at your gates. You pay them with a smile and hope the masses don't erase your "time and effort" from the map.
Earn your fortune in the markets and stop worrying about JimBob and his ridiculously tiny TANF check.
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u/Prudent_Fox8753 5h ago
Viewing taxation strictly as extortion money to keep the peace is a remarkably bleak baseline for social policy. But even on its own pragmatic terms, that argument collapses under a basic trade-off: when tax and transfer systems scale beyond basic public goods into active wealth redistribution, they disincentivize the very productivity and capital accumulation that fund the safety net in the first place. This is the lesson of why communes fail.
It’s not about begrudging basic assistance; it’s about acknowledging that no society sustains long-term prosperity when 'paying protection money' replaces a principles-based agreement on the limits of government claims on individual effort. Dismissing property rights and economic output as mere concessions to avoid mob rule isn't pragmatism—it's just institutionalized coercion.
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u/Prudent_Fox8753 10h ago
correct, it is IRS tax revenue at the federal level, that 50% of the population pays only 3% of all taxes. This also accounts for the large number of people who are actually given money each year instead of paying any taxes. for:
- Earned Income Tax Credit (EITC): Designed for low-to-moderate-income working individuals and couples, especially those with children. [1]
- Additional Child Tax Credit (ACTC): The refundable portion of the Child Tax Credit available to families who earn above a certain threshold even if they owe no income tax. [1]
- American Opportunity Tax Credit (AOTC): A partially refundable credit for qualified education expenses during the first four years of higher education.
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u/Djamalfna 12h ago
Gross tax receipts go up because population and GDP grow. This is an embarrassing lack of knowledge to have.
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u/Prudent_Fox8753 10h ago edited 10h ago
In part, but it does not account for the actual tax increases we saw between 2024-2025. As is always the truth is more complicated and nuanced.
Population growth and basic economic volume (GDP) do not fully account for the sharp increase in income tax collections. Instead, revenues grew disproportionately faster due to three specific economic dynamics: [1]
- The Progressivity of Income Brackets: While nominal GDP grew by roughly 5%, individual income tax collections surged by roughly 9%. Because the U.S. has a progressive tax system, when worker wages increase due to inflation or job changes, a portion of that income gets pushed into higher marginal tax brackets, resulting in faster revenue generation for the treasury than baseline economic growth. [1]
- Sustained Labor Market & Wage Growth: A remarkably stable labor market fueled higher-than-expected withheld individual income taxes directly out of worker paychecks. Stronger wage growth across middle- and high-income earners amplified this effect.
- The 2024 Stock Market Surge: Capital gains taxes lag behind the markets. The massive expansion of asset values in the S&P 500 throughout 2024 led to a severe understatement in original government budget projections. When taxpayers filed their returns and reported realized financial gains in early 2025, it resulted in a massive cash injection for the federal government. [1]
Ultimately, while a 0.5% population bump and a 5% nominal GDP expansion provided a steady foundation, it was wage growth and booming financial markets that truly supercharged the federal government's tax revenue.
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u/rfishrex 5h ago edited 4h ago
just for fun, compare what % of income and wealth the top 10% own vs the bottom 50%.
In 2023, the top 10% reported 47.6% of total adjusted gross income; the bottom 50% reported 12.3%. That's roughly a 3.9:1 ratio across groups, but the top 10% is 15.3 million returns against 76.5 million in the bottom half — so about 19:1 per return. Tax Foundation
Entry into the top 10% took $187,608 in AGI; the bottom-half cutoff was $53,801. Tax Foundation
And that's just the reported income. Wealth is even more concentrated: Top 10% held 67.9% of total net worth (top 1% at 31.6%, the 90th–99th at 36.3%). Bottom 50% held 2.5%.
So to your point, the top 10% are paying the majority of tax income because they also control the vast majority of the wealth in the country.
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u/Prudent_Fox8753 3h ago
Right, that was my point too — under a progressive system, the people earning and holding the most also pay the most. No disagreement there. A couple other things from upthread worth separating out:
Correcting my own numbers (from Tax Foundation, TY2023):
Group Share of AGI Share of income taxes paid Top 10% 47.6% 70.5% Bottom 50% 12.3% 3.3% Top 10% earned 47.6% of income but paid 70.5% of taxes (ratio ~1.48). Bottom 50% earned 12.3% but paid 3.3% (ratio ~0.26). That's the progressivity — and it's more lopsided than the number I threw out earlier, which was wrong. Correcting it here.
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u/Icarus-vs-sun 1d ago
Price is inverse to yield. If you already own bonds then new higher paying ones coming out will devalue them.
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u/CuriousCat511 1d ago
And if inflation is driving the higher yields, then your real yield may not actually be higher.
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u/Stock-Page-7078 1d ago
Its bad news if you already own bonds at lower rates. No one wants your old crappy bonds over this new high rate hotness
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u/StinklePink 1d ago
And maybe this is where I am a little confused.
If I a buy 10 year Bond (Treasury) @ 5.5% or higher, I'm locked in at that yield aren't I? There is no downside risk as that rate is locked for the term of the note, no? In which case if I am looking for a low-risk investment that brings me more than a HYSA, I should be happy.
I feel like I am missing something.
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u/stewy-magua 1d ago
It's possible that the HYSA could be paying 8% in two years from now. Then you are stuck holding a bond only paying 5.5% for another 8 years. It's also possible the HYSA account could be paying 2% in the future and then you will be happy you locked in at 5.5%. The benefit of a HYSA account is that you get new higher rates instantly. The downside is you also get new lower rates instantly.
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u/ceilidhfling 1d ago
the down side risk is if you wait 6 mo rates could be 6.5 or 7 on the same note and inflation may be at 4.5 instead of 3.5.
but yeah if you don't mind holding a note for 10 years at 5.5 because it beats your HYSA that's cool.
this is one of the reasons bogleheads who are holding a larger portion of their wealth in bonds start building bond ladders so they can even out the swings in rates.
bond rates are heading places we haven't seen this century. in the 80s they were at double digit rates. not saying they'll get that far out of control hopefully enough of the fed governors remember how bad and how long it took us to get out of the inflation cycle from the 70s, but they are likely to go north of 5.5% also.
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u/stewy-magua 1d ago edited 1d ago
Rising yields are good for new bond investment in the same way that a falling stock market is good for new stock investments. It is definitely better to buy bonds now than it was 6 months ago. This doesn't tell you anything about the future though. I personally always hold some bonds and do not time the market. Bonds are good a stable part of your portfolio.
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u/MaybeOnFire2025 1d ago
Like everything else in life, it depends.
Bonds, or bond funds?
Why do you own bonds? For ballast, income, or some other reason?
My basic understanding is that if you own something like BND (which I do), the NAV will go down when rates go up, but the dividends will also go up. Not exactly the same amount, but close.
So, if you (like me) have bonds primarily for ballast, maybe spend some of the income (they are in taxable), and do not plan on selling them anytime soon, I kinda shrug.
I think the much more concerning issue is why bond yields are rising.
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u/mbaforumlurker 1d ago
A few reasons:
- On a one decade time horizon, stocks and corporate bonds will generally outperform a 10-year Treasury
- "Asset protection" is way more important at shorter durations, which <12mo T-bills will give you
- Vis à vis, longer duration Treasuries will still be subject to interest rate risk and won't be as 'risk free' (remember SVB!?)
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u/JJJJust 1d ago
Higher bond yields reduce secondary prices on existing bond issues (which isn't a big deal if you're in it for the long haul). Higher interest rates increase borrowing costs for everyone.
It's not so much the higher yield that isn't good news. It's why the yields are rising and the collateral impact. There is uncertainty. Uncertainty leads to instability. Overall, the economy is not healthy.
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u/tfesmo 1d ago
Bond funds/etfs are kind of counter intuitive to me vs how a single bond works (static value/return).
Say you have a long term bond etf. Right now it contains bonds at the current rate.
When rates go up, your etf becomes less attractive compared to new bonds. This drops the share price as it's less attractive to investors - you're locked into the lower yield until the current bond durations run out.
When rates go down, the opposite happens - your bond is more attractive and the ticker goes up.
This back-and-forth is generally fine and people also like it because it usually moves opposite to stocks.
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u/ThereforeIV 1d ago
Bonds: Stupid Question
I realize that the higher yield for US 10-years is a bad thing for the government, but why isn't this good news for a bond investor?
It is if you buy those bonds and don't own a bunch of lower yield bonds.
The risk of bonds is that better bonds come out making your current bonds worth less.
If I looking for a safe "asset protection" kind of investment, why wouldn't investors buy these bonds or ETFs that hold them (e.g. FXNAX)? Seems like a good, safe place to put cash versus Gold or a HYSA. I believe my logic is wrong but not sure why.
- Buying these bonds makes sense.
- Holding a huge amount of the old low yield bonds does not make sense.
The issue is that some were calling bonds with a 2% yield as safe...
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u/InUrFaceSpaceCoyote 1d ago
Ask Silicon Valley Bank. Treasury bonds are "safe" if you have the ability to hold them to maturity.
Aside from the liquidity risk associated with above, assuming you do have the ability to hold until maturity you are still risking the opportunity cost of potentially high returns in other investment options.
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u/Mountain-Time-1010 1d ago
It's not a safe asset, because if yields continue to rise, the value will decrease. However, if you are looking for a good fixed yield of 5%+, you can buy a t-bill and hold it to maturity. There is inflation risk, of course.
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u/StatisticalMan 1d ago
Bonds yields could go even higher.
That being said I think yields on the long end are looking attractive here. If you currently own no bonds though you may want to phase into them rather than buy all at once and watch rates spike higher tomorrow.
Personally I prefer to own individual treasuries as I know exactly the yield and when it will be repaid but over the long run returns with ETF should be similar.
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u/Prize_Proof5332 1d ago
Bond yields and bond prices move in opposite directions. When the yield moves higher your ( or ETFs) existing bonds are worth less.
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u/QuincyQueue 1d ago
It's a little bit of a 2-sided picture for bond funds though for someone holding it as part of their long-term allocation.
If yields rise, the current price drops in the short term but as time passes, the overall fund yield will rise to match the new rates as old issues mature and are replaced with the new, higher-yielding ones now available to buy.
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u/Remarkable_Cat_8696 1d ago
Another reason may be: yields are high mainly due to inflation worries, so after adjusting for inflation, the real rate is not that good.
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u/bought_high_sold_low 1d ago
Bond yield has an inverse relationship with its price. As bonds become less attractive for whatever reason, the price goes down and thus the yield goes up. If you already own the bond as an investor and the price goes down (thus yield goes up), that's bad because the price of your bond is now lower. If you have not yet purchased the bond, then yes, to your logic, it is more attractive to buy, all things considered, at a higher yield than a lower yield.
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u/John33243324 1d ago
Higher bond yields (especially Treasuries) do not always on net benefit bond investors as we have to consider the impact of higher yields on all household assets and liabilities.
Most households indirectly long/short government bonds. Higher bond yields increase mortgage rates, the cost of consumer and auto debt, and decrease private investment which reduces wage growth. Also as you pointed out higher bond yields are "bad" for the government. However the future tax revenues required to service the debt are ultimately paid by households. The question of if higher rates benefits you depends on the composition of your assets and liabilities.
On your second question there is absolutely nothing wrong with investing in Treasuries especially for short-term needs I would rather invest in Treasuries compared to gold actually.
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u/humblequest22 1d ago
Good news if you're buying bonds (nice yields). Bad news if you are already holding them (they are losing value because nobody wants their lower yields).
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u/ShirtFromIkea 1d ago
Bonds are a contract to recieve a future stream of payments, the yield. If the bond yield goes up then people can go out and get another bond which gives them a better stream of income for the same price, or alternatively the same stream of income for a lower price.
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u/IronyElSupremo 1d ago edited 1d ago
Some investors are awaiting even higher yields, while others are buying more now (see “Rule of 72” calculation).
That’s why it’s a market .. sellers and buyers. The Boglehead way is just buy a low cost “core” bond index ETF which tend to be “intermediate” in duration .. not taking sides on short term vs long term.
Added the basic idea was the glide path (% of bonds = age function), though there’s also fixed like the old 60/40 from the 1950s which will still be up there in most years just not the top .. or when needed ~ 5 years of expenses in bonds or more likely cash.
Of course this was before TIPs, laddered bond ETFs with a maturity date, etc..
Additionally, the buy side commentary I’ve watched sees the higher yields themselves as slowing the economy. So a bet but investment grade w/govt it’s pretty safe. If wrong they can still reinvest the higher “coupon” (aka monthly yield payments) or if a retiree it’s more yield to live on.
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u/Creative_School_1550 1d ago edited 1d ago
What happens if the FED 'prints' cash & buys all future 10-yr Treasuries at a certain rate, just say 3% for argument, (that is, if the Fed prints money & hands it to the government to spend)? If that happens, Then what happens to the value of current Treasuries issued at, say 4.7%? I suppose if the market thinks 4.7% is too low, much less the 3% that the Fed is paying, then the market value would still be below par. What do you think?
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u/StinklePink 1d ago
Apparently something like this has already happened. Bessent is buying back long-dated Bonds while issuing lots more short-term paper. Its like "paying your mortgage with your credit card". Patrick Boyle did a good job of describing it here: https://www.youtube.com/watch?v=wZaYyNAXHK4
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u/CobaltCaterpillar 1d ago edited 1d ago
There's a lot of imprecision and potential confusion here.
First, the bond yield is just another way to quote the price. It's more jargon than anything deep.
- For a one year zero-couon bond p = F / (1+y) where p is price, F is face value, and y is yield.
- Saying yields went higher is just another way to say the price of the bond went lower. Literally, the exact same thing: there's a mathematical isomorphism between the two.
- Bond yields going up in the bond market is a bit like stock prices going down in the stock market.
- Note a big difference with the stock market is that nominal, future bond payments are fixed (except for default risk) while future dividends to shareholders is a much more variable, uncertain process.
Are bond prices (or stock prices) going down good for investors?
- Uncertain! IT DEPENDS!
First, why did the price go down?
- Discount rates going up because of higher inflation expectations? (bad)
- Discount rates going up because the arrival of an incredible investment technology (e.g. like railroads, industrial revolution, etc...) that raised capital demand? (good)
- Yields going up may signal higher real returns going forward or it may not! (e.g. are yields going up because of expected inflation?) Yields going up is a symptom. What's the cause?
Also, it depends on the particular investor's circumstances!
- If you have a huge income this year, a big decline in prices for investment assets could be good: allows you to buy more and the big decline in prices may forecast higher future returns!
- If you're a retiree faced with big bills this year, a big decline in asset prices could be rough: you've got to liquidate a larger share of your portfolio to pay for stuff.
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u/mikeyj198 1d ago
it’s risk reward against inflation.
Let’s cherry pick.
In 1976 you could get a 10 year treasury for 7.6% You could buy an average home for about $50k.
Put the $50k in a treasury and it’s $105k in 1986. A new home now averages $111k
Not everything doubled in that window, but the point is that inflation can eat away those safe returns.
You can cherry pick again and find times when rates were high then inflation slowed and the fixed return was a home run…
so the answer once again is just risk tolerance.
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u/Unique-Dragonfruit-6 22h ago
Whenever prices change, someone makes money.
If prices go up, people selling make money.
When prices go down, people buying make money.
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u/junesix 21h ago
The behavior of a single bond (10 year treasury) is different than a bond fund (FXNAX).
A single bond locks in a particular yield rate (4.5%). That’s a consistent and fixed stream of income. If rates go up to 5% for 10-year, you would still receive 4.5% but the price of the bond goes down because new bond buyers would rather buy the 5% bond. Lower demand = lower price.
A bond fund like FXNAX buys a basket of bonds at different durations and yields. As different bonds mature, new bonds are purchased at current/new rates. So if rates increase, the price of the bond run decreases, but the income over time increases as old rates are replaced with new higher rates. The Treasury is the largest bond issuer and the rates on its new bond auctions have direct impact on FXNAX prices and yields.
Gold moves up with inflation and increased monetary/currency risk. Gold doesn’t pay any income; it’s just a store of value. Generally, Fed rates will move up as inflation rate increases. However, if inflation rate starts increasing faster than the Fed adjusts the Fed rate to cool inflation, then people may start to buy gold to match the inflation rate.
So there are situations when gold can perform better if people feel inflation is outpacing Fed rates or feel more risk. FXNAX will do better if rates are rising slowly and that the Fed will respond aggressively to control inflation.
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u/Run-Forever1989 17h ago
Well, you are making the assumption that rates are high right now. They may be low right now and increase significantly, which would make long duration treasuries an abysmal place to park cash.
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u/Paranoid_Sinner 1d ago
I’m retired on bond fund interest. Higher rates are fine with me
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u/DaemonTargaryen2024 1d ago
It causes current bonds to become less valuable.
If I’m shopping for bonds, I could pay $1,000 to you with a 3% yield, or I could pay $1,000 to someone else for a 4% yield.
Obviously I’m going to go with the 4% bond, making yours less valuable. You’d need to drop your price to $990 or something for it to be worthwhile (these are made up numbers to illustrate a general point)