Wealth Balance Update September 2026

Bonds have been making the news lately

If you pay attention to the news, you have most likely heard that interest rates are going up, bonds are selling off, and US Treasury debt is no longer the safe haven it once was.

Remember: The news does not exist to provide you with information. The news exists to get your attention. There is truth in what they say, but it will always be sensationalized in order to elicit an emotional response.

This does not mean this isn’t real news. It is.

1. Interest rates on new bonds have been increasing. They are increasing because the investors that buy bonds are convinced that long-term inflation will remain high and that governments will continue to increase already massive deficits. Both of these imply an increase in the risk that the bonds won’t be able to pay their interest leading to investors demanding higher interest rates.

2. Bonds are selling off: When interest rates go up, the value of existing bonds goes down. This seems counter-intuitive, but here is a quick example of why”

   In 2024, you buy $10,000 worth of a bond paying 4% that matures in 12 years. For the next 12 years, you will collect $400 per year in interest payments, and in the 12th year you will get their $10,000 back. You will have realized a 4% annualized return. In 2026, a very similar bond hits the market with a 5% return. If you try to sell the 4% bond bond, no one will give you $10,000 for it because they can now get 5%. Instead, they will offer you less than the $10,000 you paid for it. If they buy the existing bond for around $9,225, collect the 10 remaining $400 annual payments and get $10,000 back in the end, they will have realized the same return as if they had bought a new 5% bond. Your 4% bond has lost market value.

   This leads to investors selling existing bonds at a loss because they are concerned that rates will continue to increase and that their bonds may continue to lose value.

3. US Treasury debt is no longer the safe haven it once was. This is a big one, open to debate. US Treasury debt has, since WWII, been the standard bearer for debt. It is the most widely held debt in the world. Ongoing conflicts (tariffs, Iran) and political reasons have many countries rethinking their allocation to US debt. This has an effect on interest rates, because the US now has to pay a higher interest rate on new debt (and they issue debt on an ongoing basis) to continue to find buyers. This increase in the interest in 10 and 30 years US Treasury debt is the leading cause in number 1 above. Most other debt is benchmarked against US Treasury debt so when the interest on those goes up, other interest rates go up.

Future interest rate assumptions can change rapidly. Coming into 2026, the assumption was that rates were going to go down. It was almost a given. This year, the war with Iran, the ongoing conflict with Russia and Ukraine, the AI race, and the ongoing “tariff battles” have created considerable inflationary pressures and calls for increases in government spending.

However, rates have not been skyrocketing into dangerous territory. They are not screaming about the demise of the US’s ability to pay its debt. All of the existing pressures could recede just as quickly as they arrived and conversations about decreasing interest rates could come back into play anytime.

My current stance: rates now are much more normalized in a historical sense than they have been since 2008. I personally expect them to stay in reasonable territory over the near term. The world evolves around disruptions to the status-quo all the time.

So, what do you do as an existing bond investor today? Do not run from bonds, focus on why you are holding them and the role they play in your portfolio.

Planning Topic of the Month: The Role of Bonds in Your Portfolio

Roles:

Bonds serve different purposes to different investors. These are the three main roles:

1. Capital preservation - held to maturity, bonds return principal

2. Stabilizer - bonds typically reduce the impact of a falling stock market on a portfolio.

3. Income generation - bonds typically produce more income than you can achieve with cash.

Types of Bonds

There are 3 major categories of bonds:

1. Government bonds (like US Treasury Bonds) - US Treasury bonds are (still) generally considered the safest bonds available. They pay interest that is not taxable at the state level, but is taxable at the Federal level. Because of their safely rating, they generally pay less interest than other options.

2. Municipal bonds - state and local governments issue bond that are generally tax-free at the Federal level, and possibly tax-free at the State level (depends on your state and usually only tax free if you live in the State where the bond was issued). Municipal bond debt defaults are rare, but have happened. They generally pay more interest than Treasuries, but less than Corporate bonds.

3. Corporate bonds - these are the riskiest bonds and pay the highest interest, but there is a wide variety in risk levels with Corporates. Companies are rated by third-party rating agencies on their perceived ability to repay their debt. Highly rated companies with massive cash flows (like Apple, Microsoft) generally pay less interest than small or struggling companies that have less stability.

Holding methods:

Bonds can be purchased either through a fund, or directly.

1. EFTs and Mutual Funds - ETFs and mutual funds buy a large basket of bonds. When you buy shares of these funds, you are now invested in a large number of bonds.

2. Directly - you can buy individual bonds. This is typically done using what is known as a bond ladder, where you buy bonds that mature over time.

How you hold them can make a difference. Bond funds act similarly to a portfolio of individual bonds, but:

1. Control - with funds, you are trusting the fund manager to make decisions about when to buy and sell bonds. With individual bonds, you make that decision. If interest rates go flying up, you can simply hold your individual bonds, wait for maturity, and reinvest at what should be higher rates then. A drop in bond values doesn’t impact you unless you need to access the principal early. In a fund, as investors flee from bond funds, the fund manager may be forced to sell bonds at the depressed values, accelerating the losses on remaining holders, at least in the short term.

2. An individual can’t compete with the bond fund’s war-chest. The fund manager has millions of dollars of buying power, better access to bonds, and better data. Over any extended period of time, any decent bond fund manager will outperform an individual bond portfolio from a total-return perspective.

3. Cash flow - because the bond fund holdings fluctuate, the income will not be as well defined as an individual bond portfolio.

4. Duration - bond funds typically invest in bonds in certain duration categories, ie: short-term, intermediate, long-term. In order to ladder them, you may have to use multiple funds.

5. Risk - it takes fairly significant funds (I like 500k+) to build a ladder with enough diversification so that if a bond bankrupts, the impact is minimal. In a fund, you are holding hundreds, if not thousands, of bonds.

Whether you choose corporate bonds, municipal bonds, or treasury bonds will depend on your individual need:

Safety? Consider treasury bonds, then municipal bonds, then corporate bonds

Income? Consider corporate bonds, then municipal bonds, then treasury bonds

Tax management? Consider treasury bonds or municipal bonds, not corporate bonds.

If you don’t know why you are holding bonds in your portfolio today, let’s have that conversation.