As Recession Fears Increase, Get More Bond Exposure

As inflation continues to deliver a gut punch to potential growth in the U.S., global investment firm Goldman Sachs is forecasting a 35% chance that a recession could hit within the next year.

Consumer prices continue to rise across the board, providing enough to fret over potential economic growth stagnation. Stagflation talk is already circulating through the capital markets.

“Rising commodity prices will likely result in a drag on consumer spending, as households — and lower-income households in particular — are forced to spend a larger share of income on food and gas,” Goldman Sachs notes to clients.

However, it’s not all doom and gloom. Some economists are forecasting that the U.S. will remain resilient despite the geopolitical challenges that are adding to inflation, particularly energy prices.

“The US is likely to outperform Europe, which is likely to slide into recession, owing to the American economy’s greater internal resilience and agility, though the US Federal Reserve’s failure to respond to inflation in a timely manner last year — a historic policy mistake — will undermine policy flexibility,” says economist Mohamed El-Erian in a column.

2 Funds to Consider

To prepare for the worst, bonds can help provide investors with a necessary safe haven to balance their portfolios. One all-encompassing bond option is the Vanguard Total Bond Market Index Fund ETF Shares (BND).

BND seeks the performance of the Bloomberg U.S. Aggregate Float Adjusted Index, which represents a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States, including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than one year.

For more credit risk in order to obtain more yield, investors can look at corporate bonds. One option is the Vanguard Total Corporate Bond ETF ETF Shares (VTC).

VTC seeks to track the performance of a broad, market-weighted corporate bond index. The fund is a fund of funds, and employs an indexing investment approach designed to track the performance of the Bloomberg U.S. Corporate Bond Index, which measures the investment-grade, fixed-rate, taxable corporate bond market.

For more news, information, and strategy, visit the Fixed Income Channel.