Why the bond market may not be in a crisis

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Is it a bond market crisis — or not? That is the question many investors are pondering at this moment of worrying moves.

“I wouldn’t say it’s a crisis,” Charles Schwab (SCHW) chief fixed income strategist Kathy Jones told Yahoo Finance Executive Editor Brian Sozzi on Yahoo Finance’s Opening Bid podcast (see the video above or listen below). “It’s just different [this time].”

Jones has been closely studying the bond market for years, with a résumé that includes stints with Morgan Stanley (MS) and Citigroup (C). She has been at Charles Schwab for nearly 15 years.

During her tenure, markets have provided all kinds of moments that worry investors and speculators alike. “I’ve been doing this a very long time, and I’ve been through several crises,” Jones said, citing the tech bubble burst in 2000 and the blowup of hedge fund Long-Term Capital Management as examples. “Every big event has its own unique qualities.”

Bonds have traditionally been used for balancing portfolios or reducing investors’ risk exposure to the stock market. Typically, when stock prices have gone down, bond prices go up. But both markets have proven to be a bit rockier lately, with stocks and bonds declining in tandem.

Read more: What are bonds, and how do you invest in them?

Often, woes around bonds turn to concerns about whether the US will default on its future debts, or if these moments might signal a deeper risk of recession.

“There’s no average recession,” Jones said. This time, “if we are going to have a recession, it is more due to the trade war than a typical sort of credit cycle or an exogenous event like COVID.”

The thought of a bond market crisis is something US Treasury Secretary Scott Bessent played down in a new interview with Sozzi.

Jones noted that investors might want to steer clear of high-yield bonds right now, given economic concerns that rock fundamentally shaky companies. However, “we think investment grade [bonds are] still solid. Corporate profits have probably peaked for the cycle. But over the years, these big companies have termed out their debt, meaning they’ve locked in lower cost of funding over a number of years.”

“Even in a downturn in the economy, they usually have strong balance sheets and enough earnings to pay their bondholders,” Jones continued. “So investment grade, we feel pretty good about.”