Will bonds outperform stocks in 2026? Why it could be the right time to double down on bonds.

I heard someone say this recently and it caught my attention: “Market timing is trying to catch lightning; risk management is checking radar so you’re not standing in a field during a storm.”

You might think I’m talking about the stock market. But I’m really talking about investing in bonds and trading bond exchange-traded funds (ETFs). Because bonds have been dancing since last year, after rates went from zero to a very respectable amount.

This, for the first time since around 2009, is creating potentially huge opportunities. And believe it or not, some of those opportunities are found in the bond market. It could rival the S&P 500 Index ($SPX) in terms of returns in the coming years. Here’s why.

While the stock market spent much of 2025 setting records, data from early 2026 shows that fixed income is finally finding its footing. Central banks are moving from a mode of fighting inflation to one of policy normalization.

I tend to use the Invesco Equal Weight 0-30 Year Treasury ETF (GOVI) as a proxy for the bond market. Others will use the 20+ year Treas Bond Ishares ETF (TLT), but as we saw in 2022, those longer-term bonds can be vulnerable to massive price swings. The flip side is that the same characteristic makes them big winners when rates go down.

Here are the graphs for both GOVI and TLT. They correlate, as expected. But TLT is more volatile.

This is because it owns only the 20- to 30-year portion of the yield curve. GOVI is “tiered” to include US Treasury securities with maturities from 0 to 30 years. So it is essentially one-third, like TLT, and filled with much less volatile bonds.

The argument for bonds outperforming stocks this year is based on two main trends. One is already underway and the other is still being decided. In order, I refer to yield attractiveness (the raw yield level is high compared to most of the last two decades) and a steepening yield curve.

The market is currently dealing with a K-shaped (or, dare I say, Nike swoosh) yield curve, where the short-term segments remain inverted while the long-term segments tilt upward. It makes sense to expect this curve to fully steepen, assuming the Fed cuts rates even a little later this year or next.

But despite the tailwinds, outperformance is far from a guarantee. Several factors could limit the bond rally. Stocks could continue to rise at double-digit annual rates of return, stealing the spotlight from bonds as they have in recent years. And there may simply be an “equity culture” that makes investors unable to view bonds as a total return asset class rather than something resembling a money market fund.

Additionally, there is what they call “term premium” risk. Investors are starting to demand higher yields to offset long-term concerns such as persistently high debt and expansionary fiscal policies. That concern could put downward pressure on bond prices in the second half of the year.

I have a bond ladder as one of the main positions in my portfolio. It is designed so that a certain amount of dollars matures each year between the beginning year and the ending year, which will take me to an advanced age. As much as this is a long-term investment, if rates eventually begin to buckle and fall along the yield curve, the math for bonds is very favorable.

How favorable? Longer-dated bonds could rally 20% to 30% in a matter of months. All while having the support of the US government that owes me a certain amount of money on a certain date. If the stock market approaches all-time highs, that will look very attractive. It’s not upon us yet, but it’s at the top of my watch list for action when the path down in rates becomes more evident.

Rob Isbitts created the Roar Scorebased on his more than 40 years of experience in technical analysis. ROAR helps DIY investors manage risk and build their own portfolios. To view Rob’s written research, see ETFYourself.com.

On the date of publication, Rob Isbitts had no (directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article are for informational purposes only. This article was originally published on Barchart.com