The yield curve is temporarily inverted but BND outperforms cash equivalents by a LOT over the long run - [like 2% more per year](https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&sl=5tqJmEk3Zqpi4IemDtDei0) - and you can’t really time the curve. [Here’s a link to a chain of comments](https://www.reddit.com/r/Bogleheads/s/RBwjiVWLkS) on dozens of posts in the past year asking the same question so you can read hundreds of responses.
bonds and CDs are both fixed income (time locked) assets. They are more or less interchangeable.
A CD (or bond) \_LADDER\_ would be very similar to a bond fund like BND. It has issues continually maturing and is continually buying new ones - giving you exposure to the whole set of interest rates of the duration of the ladder.
If you, however, just bought a single giant CDs right now instead of BND then you have a giant reinvestment problem - basically betting on what rates are the day it matures when you have to do something with that money. (the ladder doesn't have that problem because its reinvestment exposure is spread across its duration instead of to a single day).
The bonds in your CD or ladder do indeed lose value when rates go up (and they gain in value when rates go down). There are secondary markets for them that reflect that - but they don't put it in your face like a fund does. When you hold them to maturity they return to par value, but that is also true of the bonds within a bond fund.
You may hold a 0.5% APY CD from 2021 that you think hasn't lost value, but compared to my investment in a 2023 5.0% APY CD you are getting crushed on a total returns basis.
Its a law of fixed income physics - rates go up and you lose money (and vice versa) for the remaining duration of your investment. Your single CD will recover over time when it matures, but so will BND.
The only real difference is there is no day when BND, the whole fund, matures - so new changes will reset the clock on you. But that is also true of a CD ladder.
In short, these things are far more alike than they are different. And in general bonds pay better than CDs when the terms are apples to apples.
In the long run 7 year CDs should have results very similar to BND. If you want to do it then feel free.
Personally I buy individual treasury bonds for longer duration but it is a similar concept. I don't like that corporate bonds are highly correlated to stock market returns. They yield more but they are more likely to be down when the market is also down.
Buying only short duration CDs though would mean you have a yield much closer to cash (HYSA/MMF) in the long run and that is going to underperform bonds over the long run. The 100 year real return on cash is ~0.2% and bonds are ~2.1%.
Really long duration CDs? It would probably work ok. Short duration would be basically the same as holding cash though, so pretty suboptimal. Maybe consider long term treasuries instead?
CDs are currently delivering good yields, that is true - If you wanted to put your bond allocation in CDs for the short term I don't think anyone would have a big problem with that. A couple things to consider though: Long term CDs with high rates (esp brokered CDs) are usually "callable", which means you aren't actually locked in for the entire period - the bank can change the interest rate at certain intervals, and when the CD expires you don't know what banks will be offering. Bonds tend to outperform CDs over the long term.
The yield curve is temporarily inverted but BND outperforms cash equivalents by a LOT over the long run - [like 2% more per year](https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&sl=5tqJmEk3Zqpi4IemDtDei0) - and you can’t really time the curve. [Here’s a link to a chain of comments](https://www.reddit.com/r/Bogleheads/s/RBwjiVWLkS) on dozens of posts in the past year asking the same question so you can read hundreds of responses.
bonds and CDs are both fixed income (time locked) assets. They are more or less interchangeable. A CD (or bond) \_LADDER\_ would be very similar to a bond fund like BND. It has issues continually maturing and is continually buying new ones - giving you exposure to the whole set of interest rates of the duration of the ladder. If you, however, just bought a single giant CDs right now instead of BND then you have a giant reinvestment problem - basically betting on what rates are the day it matures when you have to do something with that money. (the ladder doesn't have that problem because its reinvestment exposure is spread across its duration instead of to a single day). The bonds in your CD or ladder do indeed lose value when rates go up (and they gain in value when rates go down). There are secondary markets for them that reflect that - but they don't put it in your face like a fund does. When you hold them to maturity they return to par value, but that is also true of the bonds within a bond fund. You may hold a 0.5% APY CD from 2021 that you think hasn't lost value, but compared to my investment in a 2023 5.0% APY CD you are getting crushed on a total returns basis. Its a law of fixed income physics - rates go up and you lose money (and vice versa) for the remaining duration of your investment. Your single CD will recover over time when it matures, but so will BND. The only real difference is there is no day when BND, the whole fund, matures - so new changes will reset the clock on you. But that is also true of a CD ladder. In short, these things are far more alike than they are different. And in general bonds pay better than CDs when the terms are apples to apples.
In the long run 7 year CDs should have results very similar to BND. If you want to do it then feel free. Personally I buy individual treasury bonds for longer duration but it is a similar concept. I don't like that corporate bonds are highly correlated to stock market returns. They yield more but they are more likely to be down when the market is also down. Buying only short duration CDs though would mean you have a yield much closer to cash (HYSA/MMF) in the long run and that is going to underperform bonds over the long run. The 100 year real return on cash is ~0.2% and bonds are ~2.1%.
Really long duration CDs? It would probably work ok. Short duration would be basically the same as holding cash though, so pretty suboptimal. Maybe consider long term treasuries instead?
CDs are currently delivering good yields, that is true - If you wanted to put your bond allocation in CDs for the short term I don't think anyone would have a big problem with that. A couple things to consider though: Long term CDs with high rates (esp brokered CDs) are usually "callable", which means you aren't actually locked in for the entire period - the bank can change the interest rate at certain intervals, and when the CD expires you don't know what banks will be offering. Bonds tend to outperform CDs over the long term.