Bonds are boring again. But political unrest could change that.

Bonds have faded into the background, where they belong. As steady earners, they don’t even try to compete with stocks, the prima donnas of the investment world.

The first half of the year was mediocre for bonds, but that counted as a colossal improvement. Too often in the last three years, bonds have demanded attention for the worst reasons.

With annual inflation falling, the fundamental outlook for bonds through the remainder of 2024 and beyond has never been more positive. If you have money in a money market fund earning 5 percent or more a year, you might want to plan ahead, because those sweet short-term rates could soon fall, while bond yields would get a big boost.

But with uncertainty mounting over the country’s political future since the Trump-Biden debate, there are already signs that the bond market is getting tricky to navigate. Here are some key factors to consider, and some ways to navigate them.

The bad times

First, some essentials about investing.

Stocks are risky. I’ve always known that, and I’m willing to take periodic losses in the expectation that I’ll get excellent returns over the long term. But bonds? They’re supposed to be safe — a balm when the stock market hurts.

They have been anything but restful over the last few years. The market has been so bad that I have sometimes wondered whether it is worth holding bonds at all. Just look at the numbers.

From early 2022 through October of that year, as inflation rose and interest rates rose, core bond funds that track the main investment-grade benchmark — the Bloomberg Aggregate Bond Index — took a beating. That index fell more than 15 percent over that period, including interest and dividends, and so did the funds that track it, such as the Vanguard Total Bond Market Index Fund and the iShares Core US Aggregate Bond ETF.

At the same time, the S&P 500 lost nearly 18 percent, including dividends. Bonds did not stabilize portfolio returns during the stock market downturn. They made matters worse.

Bond yields have improved since then, but not by much. In the first half of this year, that core bond index was still down slightly, down 9 percent from the start of 2022 through July 3.

To be fair, bonds have been fine investments, even during these tough years, in limited cases. Because you don’t suffer losses if you hold a high-quality bond to maturity, individual bonds have worked well for limited periods and purposes: like parking money safely until you’re ready to buy a house or send a kid to college. Solid bonds — Treasuries, investment-grade corporate bonds or high-quality municipal bonds — have also proven useful for people who need to generate a secure income for retirement.

But bonds and bond funds have a broader purpose: they are an integral part of diversified portfolios. In that respect, they are disappointing.

What has changed

History, however, shows that what we just experienced is a rarity. This ordeal seems all but over, with one major exception: potential market turbulence resulting from the presidential race.

Let’s start with the core problems in the bond market

Consider how well bonds have performed over long periods of time. From January 30, 1976, through June, the Bloomberg Aggregate Bond Index rose at an annual rate of 6.5 percent. From 1984 through 2021, bond market returns were positive nearly every year.

Interest rates and inflation are critical to bonds. For people who buy bonds, they have improved significantly.

This can be confusing. Higher yields give bondholders more income. The problem for investors comes when interest rates or yields rise, because bond prices fall. That’s why bondholders and bond funds have suffered losses in recent years.

During the 2008-9 financial crisis, short-term interest rates controlled by the Federal Reserve fell to near zero, and yields on longer-term, market-driven bonds also fell. Those falling rates led to rich bond profits at the time, but also fueled the debacle of the last few years, when inflation and interest rates soared.

We now live in a more favorable environment, both for inflation and for bond yields. While inflation has not been defeated, it has been tamed.

At the same time, interest yields are already quite high. The 10-year Treasury note peaked at around 5 percent last October and is unlikely to break back above that level anytime soon, according to the consensus market. At the current trading range of 4 percent to around 4.5 percent, “10-year Treasuries are a good value,” said Jeff MacDonald, head of fixed-income strategies at Fiduciary Trust International, an affiliate of asset manager Franklin-Templeton.

Yields on many taxable and tax-exempt bonds are likely to be lower a year from now, he said, leading to a rise in bond prices over and above the income bonds generate.

Additionally, if you have money in money market funds, where yields above 5 percent are common, you may want to consider moving some money into bonds or bond funds. The Fed’s own forecasts suggest that it will begin cutting short-term rates toward the end of the year. Money market fund yields would then begin to fall rapidly, and it may be too late to lock in attractive bond yields.

If the economy starts to stall, interest rates “could come down faster and lower than markets are currently expecting,” said Gennadiy Goldberg, head of U.S. rates strategy for TD Securities. “It makes sense to get ahead of that.”

But the elections

The stock market has barely reacted to the questions hanging over the presidential race. But the bond market has.

Long-term Treasury yields jumped immediately after the debate, in response to the marked improvement in the electoral prospects of former President Donald J. Trump and Republican candidates for Congress and the worsening outlook for the Democrats.

Those steeper rates likely reflected concerns that Trump could control both Congress and the presidency. He could then pursue policies like deeper and broader tariffs, along with tax cuts that could significantly increase the budget deficit. All of that could contribute to higher inflation and interest rates.

Bond yields have come down a bit and the political situation is fluid. It is not even clear anymore whether President Biden will be the Democratic candidate. At this point, it is wise to proceed cautiously.

Some bonds are more vulnerable to sudden changes in interest rates. Remember that when interest rates rise, the prices of longer-term bonds fall more than those of shorter-term securities. At this point, making big bets on long-term bonds is risky. And high-yield bonds, also known as junk bonds, are often bad bets when the bond market gets into trouble.

The Bloomberg US Aggregate Bond Index tracks a conservative slice of the market. Its duration — a sensitivity to interest rates — is about six years and includes only Treasuries and high-quality investment-grade bonds. I would think twice before buying bonds or bond funds that are riskier than that.

In fact, if the political situation becomes even more uncertain, it may be a smart move for a while to simply hold cash (in money market funds, savings accounts, or some other safe place).

But bonds, especially Treasuries, can be a haven in a real crisis. That’s an enduring reason to hold them. Still, bonds are at their best when they’re quietly doing their main, unglamorous job: generating income and smoothing the bumpy ride of equity portfolios. I hope the political world will allow bonds to be painfully boring.