Advisors of a certain age undoubtedly recall a time in the early 1980s when the 10-year Treasury yield blew past 15% and stayed above 10% right through 1985.

Those who do should empathize with boomer clients who recall putting their savings into 10% certificates of deposit and now ask if they should wait to buy bonds until interest rates get higher again.

The challenge is how to break it to such nostalgic clients that those days aren’t likely coming back. After all, that rate spike only occurred because it was preceded by a decade-long war that was massively funded by debt, a booming economy that went bust, a period of huge social spending, and an easy money policy that got away from the Federal Reserve.

Some clients may assume that it is easy to “time” the bond market. After all, the Fed has its inflation targets and sets rates to meet them.

Shouldn’t that mean one can wait until long bond yields significantly exceed the Fed’s inflation target and then buy bonds and hold them? After all, the Fed’s not going to let inflation go nuts again, right?

Advisors know it isn’t that easy, but they may want to tread gently. Explain why it is tough to time the bond market and why clients shouldn’t expect double-digit coupons, either, even though the Fed raised rates on June 13.

As bond guru Mark Hulbert, editor of the Hulbert Financial Digest says, it has gotten increasingly hard for analysts to time the bond market.

We are in historically uncharted territory these days, with unprecedentedly low rates and with short and long bond yields converging, he says.

Also, there has been a “wholesale shift in the correlations between the bond and stock markets,” which Hulbert notes nowadays tend to move in opposite directions, instead of moving together as of yore.

So, what is an advisor to do for those nostalgic clients seeking a conservative income-producing bond portfolio, if they can’t just wait for another 1980s-style pop in yields?

Jeffrey Smith, co-principal of Bright Futures Wealth Management, an independent financial advisory firm based in Rockville, Maryland, says the first thing to do is look at what kind of yield the client actually needs in order to retire securely.

“If it’s someone who has lots of assets, it could be that a 2% yield will be fine for such a client; they’re not going to run out of money,” he says. “Sure 4% would be better, but they don’t need it.”

Meanwhile, clients of fewer assets may require a 4% to 4.5% yield and can get that by laddering, Smith says.

Smith suggests a ladder with the rungs unequally spaced, perhaps with three buys of six-, nine- and one-year duration and then longer buys of 7- and 10-year bonds where he is trading on the short end to increase the yield “because there is, uncharacteristically, more volatility on the short end right now.”

This story is part of a 30-30 series on evaluating fixed-income opportunities when rates are rising.

Dave Lindorff

Dave Lindorff is a contributing writer for Financial Planning and On Wall Street.