DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.

A benchmark of the United States bond market has reached territory unseen since before the global financial crisis, creating pain for borrowers but a potentially compelling opening for investors seeking income. The 10 year Treasury yield climbed to 5.208% on Thursday, its highest level since June 2007.

Yields remained elevated Friday after inflation pressure, particularly from higher oil prices, combined with expectations that the Federal Reserve will raise rates at least once more this year. Those forces have pushed borrowing costs higher across the economy while making newly issued government debt more attractive.

Higher yields on long term bonds often weigh on stocks because consumers and companies face more expensive financing. The increased costs can slow economic activity and are particularly troublesome for households seeking mortgages, auto loans, or other forms of credit.

Dominic J. Pappalardo, chief multi-asset strategist at Morningstar Wealth, said mortgage borrowing costs tend to move closely with the 10 year Treasury yield. He said auto loans and many other consumer financing rates are also closely connected to the benchmark.

The other side of that equation is brighter for people with savings or money available to invest. Higher interest rates can increase the income generated by savings and investments, even as those same rates make life more costly for borrowers.

Real yields on Treasury notes, which account for expected inflation, have risen on net since February, around the time the war with Iran began and oil prices jumped. Longer maturities may allow investors to secure elevated rates for an extended period.

Long term Treasury yields are established in the public bond market, which typically reacts to inflation expectations and other factors. Steve Laipply, global co-head of iShares Fixed Income ETFs for BlackRock, described current conditions in striking terms: “We refer to it as a generational income opportunity.”

That opportunity does not mean investors should overhaul their portfolios in response to a single market move. Financial and investing professionals caution that buying bonds simply because current yields look attractive may not suit every investor or financial plan.

Treasury notes and bonds generally make fixed interest payments. When market yields rise, prices for existing Treasurys usually decline because their lower fixed payments become less appealing than the payments available from newly issued securities.

The relationship also works in reverse when yields fall. Investors commonly hold bonds to diversify away from more volatile stocks, while Treasury notes and bonds offer an income benefit through interest payments made every six months.

People nearing retirement or already retired could benefit most directly from higher Treasury yields. Pappalardo also said investors pursuing a nearer goal, such as buying a home within five to 10 years, may consider adding bonds or increasing existing holdings.

Time horizon remains central to any decision. Investors must consider whether they want to commit money for five years, invest for longer, or remain flexible while uncertainty around rates, inflation, oil, and the conflict with Iran continues.

Yields could climb further if the Federal Reserve raises rates beyond the increases already reflected in market pricing or if oil prices rise significantly, according to Laipply. Conversely, yields could fall if the conflict with Iran de-escalates and oil prices settle down soon.

That uncertainty makes an attempt to time the bond market risky, although Pappalardo said the risk is lower than trying to time stocks. “Even if rates go from 5% to 6%, yeah, you may see some price decline, but it’s relatively marginal,” he said, while noting that the effect can vary with a bond’s duration.

Investors may purchase individual bonds that correspond with their planned time horizon or use a bond exchange traded fund for broader exposure. Laipply said an extremely cautious investor waiting for conditions to settle could consider SGOV, an ETF holding Treasury bills with maturities of three months or less.

The central warning is to resist emotional portfolio decisions simply because Treasury income has reached levels not seen in decades. Pappalardo said, “I wouldn’t suggest somebody completely rebuilds their entire portfolio or investment approach today,” though measured changes could capture some of the new income opportunity.

For example, an investor with 10% of a portfolio currently allocated to bonds might consider raising that share to 15% or 20%, depending on personal risk tolerance and time horizon. The opportunity may justify a careful adjustment, but not the destruction of an established investment plan.

DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.