2019 was a historically great year for investors to own bond funds, recalls John Bonnanzio, fund expert and editor of Fidelity Monitor & Insight.

Fidelity U.S. Bond Index (FXNAX) — a proxy for the broad taxable market) gained 8.5% — its biggest rise since 2000, and significantly more than bonds’ expected long-term returns of 4-5%

Last year’s bond bonanza was preceded by the Fed’s four overzealous rate-hikes in 2018 (which resulted in bond prices falling that year), followed by three rate cuts in 2019. That about-face in monetary policy yielded last year’s out-sized gains.

This year, a flight to safety has helped. But even before the coronavirus spread, sales of investment grade bonds were running at multiyear highs and the pace of junk bond issuance hit a 10-year high. While the former has continued to be met by strong demand, high yield has sold off (along with other risk assets, including stocks).

While bond investors had the wind to their backs last year (three rate cuts, for example) and now into January, it’s quite hard to imagine any more easing this year. Indeed, the economy would really have to hit the skids for the Fed to reduce rates from its already-low range of 1.50% to 1.75%.

Certainly, a pandemic could slash global GDP growth (it’s already a possibility in China). In that case, we’d expect safe-harbor bonds to hold up quite well indeed. On the other hand, with a true pandemic, we’d all have far more to worry about than our bond-fund performance!

So how best to invest in taxables this year? Keeping in mind that there are already solid gains priced in, we still prefer corporates over Treasuries. Decent GDP growth, low inflation and solid earnings provide corporates solid support.

Over the course of the year, that should give taxable funds a performance edge over lower-yielding government and Treasury bond funds (though the latter outperformed as the virus spread).

In practical terms, we presently prefer Fidelity Investment Grade Bond (FBNDX) over Fidelity Gov’t Income (FGOVX), and we have a slight preference for Fidelity Intermediate Bond (FTHRX) and Fidelity Limited Term (FJRLX) over lower- yielding Fidelity Intermediate Gov’t Income (FSTGX) and Fidelity Intermediate Treasury Income (FUAMX); their interest-rate risks are similar.

We also recommend the expertly managed and well-diversified Fidelity Total Bond (FTBFX). A close cousin to Fidelity Limited Term Bond (FJRLX), its yield is higher (2.30% versus 1.77%) owing to its smallish stakes in high-yield and emerging market bonds (at 12% and 4%, respectively).

For less interest-rate risk our preferred funds are Fidelity Floating-Rate High Income (FFRHX) and Fidelity Conservative Income Bond (FCONX). To be clear, we classify Floating Rate in our Scorecard as a high income fund.

Although it’s Fidelity’s least-volatile offering within that group, 58% of its assets are in B-rated bonds with another 5% in CCC- and below rated bonds.

So the fund’s overall credit quality is very low. (Then again, Fidelity’s credit analysts are among the best in the business at sniffing out and avoiding trouble!)

It’s also important to recognize that almost all of this fund’s assets are very, very short-term bank notes where default rates are normally minuscule. Held in our income-oriented models, Floating Rate yields a considerable 4.46%.

Finally, for the risk-averse, Conservative Income is an ultra-short term bond fund that’s very-nearly a money market (though not technically as its NAV is not as stable!). Yielding 1.64% versus 1.44% for Money Market (Fidelity’s only retail-available prime money market fund), it mostly holds high-quality corporate debt.

In last year’s falling rate environment, Floating Rate was swimming upstream. But with minimal interest-rate and credit risk, Conservative Income still returned 2.9% — almost a full percentage point more than Money Market. Top-bracket investors should hold Fidelity Conservative Income Municipal (FCRDX).

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