Why Bonds Are Making a Comeback After Years of Losses

Are Bonds Finally Worth Buying Again?

For a long time, traditional bonds seemed like a quiet choice for most investors. Many market participants focused heavily on fast-growing technology stocks instead.

However, market conditions are shifting rapidly. Charlie Bobrinskoy, the vice chairman at Ariel Investments, recently shared his outlook during an interview on CNBC.

He believes fixed-income assets are becoming attractive again for the first time in nearly two decades. While higher yields look appealing, investors should remember that bond prices still face market volatility.

"...for the first time in two decades, we have decent expected returns in the bond market."

Breaking Down the Numbers: Yields and Inflation

To understand why investor interest is returning, it helps to look closely at government bond rates.

The benchmark 10-year U.S. Treasury yield recently hovered near the 5% level. In recent weeks, yields even climbed close to 5.3%.

Data from the Federal Reserve shows that the 10-year yield dropped to 4.96% on Oct. 22. It then closed at 5.00% on Oct. 23.

Yields alone do not show the full picture. Investors also consider the real yield, which is the return left over after accounting for inflation.

On Oct. 23, the inflation-adjusted return stood at 2.66%. Bobrinskoy noted that real yields have reached around 3% recently, giving bondholders a solid margin over inflation.

Why Bonds Struggled for Six Straight Years

Before this recent shift, fixed-income markets went through a extended period of weak performance.

Bobrinskoy explained that bonds posted negative returns for roughly six years. Government budget deficits and unexpected inflation repeatedly surprised market participants.

When inflation stays persistent, central banks keep rates high. That dynamic typically puts downward pressure on older bond prices.

Despite those tough years, benchmark indices have shown signs of recovery. Bloomberg data shows its U.S. Aggregate index—a gauge of investment-grade bonds—gained 1.25% in 2024 and jumped 7.30% in 2025.

Past performance of financial assets or investment indices is not a guarantee of future returns.

The Tug-of-War Between AI Tech Stocks and Bonds

Artificial intelligence investments have driven stock market gains for months. Yet recent selloffs show that investors remain cautious about tech valuations.

An AI stock selloff coincided with a 17 basis point (0.17 percentage point) one-day drop in the 10-year yield. When doubts about tech spending rise, demand for safe Treasuries often increases.

Stock markets moved higher on Tuesday for a second day. The Nasdaq rose more than 1%, while Boeing kept the Dow Jones Industrial Average barely positive.

The primary concern involves corporate spending. Tech companies are spending roughly $700 billion on data centers and AI infrastructure.

Bobrinskoy warned that weak financial returns on these massive investments could hurt tech-heavy portfolios.

He advised investors to balance their market exposure across different sectors, including energy, home products, consumer discretionary stocks, and bonds.

Economic Forces Driving Heavy Borrowing

Bond yields stay elevated because demand for credit remains strong across multiple sectors.

Tech infrastructure funding requires significant capital. At the same time, European governments face growing deficit challenges similar to those in Washington.

A third-quarter market review from MAI Capital Management, published Oct. 2, documented a bond selloff that pushed the 10-year Treasury yield up to around 5.3% from 4.2%.

What Should Investors Watch Next?

Market researchers at Charles Schwab noted that upcoming earnings reports from major tech firms will provide crucial clues about AI profitability.

If tech earnings disappoint investors, capital may flow into Treasuries, pulling yields lower.

Conversely, strong earnings results could spur even more tech borrowing, keeping upward pressure on yields.

For now, the bond market sits directly between two forces: government deficits and tech borrowing pull yields up, while concerns over AI profitability drag them back down.