What advisors are telling their clients after the bond market sell-off

As investors digest the latest bond market sell-off, advisors have tips about portfolio allocation amid continued market volatility.

Typically, investors flock to fixed income like U.S. Treasurys when there’s economic turmoil. The opposite happened this week with a sharp sell-off of U.S. government bonds, which dropped bond prices as yields soared. Bond prices and yields move in opposite directions. 

Treasury yields then retreated Wednesday afternoon when President Donald Trump temporarily dropped tariffs to 10% for most countries but increased levies on Chinese goods. That duty now stands at 145%.

As of Thursday afternoon, Treasury yields were down slightly.

Still, “there’s a massive amount of uncertainty,” Kent Smetters, a professor of business economics and public policy at the University of Pennsylvania’s Wharton School, told CNBC.

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Experts closely watch the 10-year Treasury yield because it’s tied to borrowing rates for products like mortgages, credit cards and auto loans. The yield climbed above 4.5% overnight on Tuesday as investors offloaded the asset. As of Thursday afternoon, the 10-year Treasury yield was around 4.4%.

Kevin Hassett, director of the U.S. National Economic Council, told CNBC on Thursday that bond market volatility likely added “a little more urgency” to Trump’s tariff decision. 

As some investors question their bond allocations, here’s what advisors are telling their clients.

Despite the latest bond market sell-off, there hasn’t been a recent shift in client portfolios for certified financial planner Lee Baker, owner of Apex Financial Services in Atlanta. 

“I’ve been taking a proactive approach” by shifting allocations early based on the threat of future tariffs, said Baker, who is also a member of CNBC’s Financial Advisor Council.

With concerns about future inflation triggered by tariffs, Baker has increased client allocations of Treasury inflation-protected securities, or TIPS, which can provide a hedge against rising prices.

Ivory Johnson, a CFP and founder of Delancey Wealth Management in Washington, D.C., has also been defensive with client portfolios. 

“I’ve used instruments to give me guardrails,” such as buffer exchange-traded funds to limit losses while capping upside potential, said Johnson, who is also a member of CNBC’s FA Council.

Buffer ETFs use options contracts to provide a pre-defined range of outcomes over a set period. The funds are tied to an underlying index, such as the S&P 500. These assets typically have higher fees than traditional ETFs.

With future stock market volatility expected, investors should revisit risk tolerance and portfolio allocations, Baker said. 

“This is a good time for a temperature check,” he said.

Market turmoil has happened before and will happen again. If you can’t stomach the latest drawdowns — in stocks or bonds — this is a chance to shift to more conservative holdings, Baker said. 

“We’re not selling because I’m concerned about the market,” he added. “I’m concerned about comfort level.”