with 10-year yields moving from around 6.5% to touching 7%+ this year, curious how people are thinking about rebalancing their fixed income portfolios. do you sell existing bonds, hold to maturity and redeploy new money, or something else entirely?
I never sell bonds to rebalance. My fixed income is buy and hold by design. When a bond matures I redeploy into whatever makes sense at that point. The yield movement this year has actually made new purchases more attractive, so I have been adding to the ladder with slightly longer duration than I would have six months ago.
wait so you literally just hold everything till it matures? doesn’t that mean you’re stuck with old lower yields?
Only on the bonds I already hold. But those were good yields when I bought them. The mistake people make is selling bonds mid-tenure to chase newer higher yields. You almost always give up more in exit price than you gain in the new yield.
The decision to rebalance fixed income really depends on what triggered the rebalance. If it is because your overall equity-debt split has drifted, the right move is to add new money to debt rather than sell existing bonds. If it is because you believe yields will go higher still and want to delay locking in, that is a market timing call which most retail investors consistently get wrong.
That said, there is a case for shortening duration in a rising rate environment. Moving from 7-year bonds to 2-year bonds reduces your mark-to-market exposure if yields continue rising.
so the practical answer is: don’t sell existing bonds, use new money to rebalance, and if you’re worried about rates going higher just keep new purchases short duration?
basically:
don’t sell bonds to rebalance
use new money or maturing bonds to adjust
rising rates = opportunity to buy at better yields, not a reason to panic sell
short duration if uncertain about rate direction