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[Animated glitches containing various letters flip to spell out the following financial terms]
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Bear Market
Business Cycle
Risks
Bull Market
Fixed Income
Inflation
Equities
Diversification
Interest Rates
Opportunities
Geopolitics
Market Catalysts
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Please read important information at the end of this program. Recorded on 4/23/2025.
[Matthew Diczok speaking throughout]
As tariff and trade disputes intensify, bond markets, usually known for stability, have experienced extraordinary volatility, including a rapid, historic sell-off in long-term U.S. Treasurys in April.Footnote 1
We know investors have concerns about what's going on in the bond markets and what it could mean for their portfolios. But there's also a risk in making sudden decisions based on ominous sounding headlines and rapidly changing events. So, to help put everything in perspective, here's how I'd answer three questions I've been getting a lot from investors.
Lower third:
Matthew Diczok
Head of Fixed Income Strategy
Chief Investment Office
Merrill and Bank of America Private Bank
First: Have U.S. Treasurys lost their luster?
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Investors want to know:
Have U.S. Treasurys lost their luster?
While many factors are contributing to bond volatility, selling by overseas investors has led to concerns that tariff-driven sales could permanently alter the U.S. Treasury market.
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Foreign countries hold less than a combined 24% of the $36 trillion in U.S. government debt.
Source: Reuters, "US Treasuries: Who owns US debt?" Feb. 10, 2015
For perspective: Of $36 trillion in U.S. government debt, foreign countries hold less than investors may assume: a combined 24%. China, second to Japan, accounts for less than $800 billion, officially.Footnote 2 While foreign selling can create short-term volatility, Treasurys, like the U.S. economy and the U.S. dollar, remain absolutely pivotal to the global economy.
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Treasurys, like the U.S. economy and the dollar, remain pivotal to the global economy.
That's not something we see changing, even with disruptive tariff battles. At the same time, sales have increased yields, which are better for clients with cash to invest.
Second, could falling values damage my existing bond holdings?
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Investors want to know:
Could falling values damage my existing bond holdings?
It's not fun when things you own drop in value. But now is a good time to consider why you invest in bonds. If you own them for income and diversification rather than price appreciation, falling prices have little practical impact and even bring potential opportunity.
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Falling bond prices have little practical impact on investors and could bring potential buying opportunities.
Say you own high-quality, 10-year bonds with a 5% yield. You receive regular income regardless of price changes and, when the principal gets repaid at maturity, lower prices and higher yields could enable you to buy new bonds with even higher income potential.
Finally, with the chance of recession rising, should I change my allocation to stocks?
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Investors want to know:
With the chance of recession rising, should I change my allocation to stocks?
In our view, current stock prices already reflect heightened recession risk.
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We believe current stock prices already reflect heightened recession risk.
Selling in anticipation of a further drop may hold little benefit and could potentially force you to buy back into equities at higher prices after markets have recovered. Keep in mind that while bonds are an essential portfolio diversifier, stocks — despite their risks — have historically offered better long-term growth potential.
Thanks for watching, and that's the Market Decode.
On-screen disclaimers:
Important Disclosures
The opinions expressed are as of April 23, 2025, and are subject to change.
Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.
Asset allocation, diversification, and rebalancing do not ensure a profit or protect against loss in declining markets.
Investments have varying degrees of risk. Some of the risks involved with equity securities include the possibility that the value of the stocks may fluctuate in response to events specific to the companies or markets, as well as economic, political or social events in the U.S. or abroad. Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yields and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices typically drop, and vice versa. Treasury bills are less volatile than longer-term fixed income securities and are guaranteed as to timely payment of principal and interest by the U.S. government.
This information should not be construed as investment advice and is subject to change. It is provided for informational purposes only and is not intended to be either a specific offer by Bank of America, Merrill or any affiliate to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service that may be available.
The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., ("Bank of America") and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S" or "Merrill"), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation ("BofA Corp.").
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[End of transcript]
Bonds are an important part of a balanced portfolio, offering potential stability and predictable income. But like equities, they've been experiencing extraordinary volatility as a result of current policy uncertainties.
"We know investors have concerns about what's going on in the bond markets and what it could mean for their portfolios. But there's also a risk in making sudden decisions based on ominous headlines and rapidly changing events," says Matthew Diczok, head of Fixed Income Strategy for the Chief Investment Office (CIO), Merrill and Bank of America Private Bank.
In the video above, he offers insights that can help put the recent volatility in perspective and suggests ways investors can consider taking advantage of current higher yields. "Treasurys, like the U.S. economy and the dollar, remain pivotal to the global economy. That's not something we see changing, even with disruptive tariff battles," he adds.