Third is a continuation of the present economy, in which inflation all but disappears, productivity keeps rising, and the dollar remains strong. Bond prices would go up, but stocks, supported by lower interest rates and a vibrant economy, should keep moving even higher. BankBoston's Thompson leans toward the first scenario but believes that while bond prices will move up, they will do so in a volatile way, offering an opportunity to get into bond funds during downturns. One such dip occurred last week when a sudden fall in the value of the dollar made bonds less attractive to foreign buyers. The long and short of it.
Bond funds vary by categories, just like stock funds.
Long-term Treasury funds have done best recently and remain attractive for investors who like Yardeni's scenario. But short-term funds also have appeal as an alternative to putting cash into a money market fund. You get a higher yield, and there will be some capital appreciation if the Fed cuts interest rates, which will have the most direct impact on short bonds. Similar-sounding funds may turn out to be quite different. It's a good idea to look in advance into a fund's portfolio holdings to make sure there are no surprises.