How do bonds behave during a market crash?

During a market crash, bonds often act as a safety net. Investors move money from risky stocks into safer assets like government bonds. This demand can drive bond prices up and yields down. However, not all bonds behave the same — government bonds usually rise, while risky corporate bonds may fall.

What Happens to Bonds When Stocks Crash?

When stock markets crash, fear takes over and investors look for safe places to park their money. This is when bonds — especially government bonds like Indian G-Secs or US Treasuries — become very attractive. The shift of money from stocks to bonds is called a “flight to safety.”

As more investors buy bonds, their prices go up. But since bond yields move opposite to prices, the yields fall. So, during a crash, you’ll usually see stock prices falling and bond yields dropping at the same time.

Do All Bonds React the Same Way?

No — not all bonds behave the same. Here's the difference:

• Government bonds: Usually go up during a market crash because they are seen as very low risk.
• Corporate bonds: Especially those issued by weaker companies, may fall because investors fear default risk increases during a downturn.
• High-yield or junk bonds: These behave more like stocks and can fall sharply in a market crash.

So, while some bonds protect your capital, others may also lose value during high market volatility.

Why Do Bond Yields Fall in a Crash?

Bond yields fall because prices rise. When many investors rush to buy bonds, demand increases. This drives up prices. Since bond yield is calculated as interest divided by price, the yield naturally drops.

For example, if you buy a ₹1,000 bond paying ₹50 interest, the yield is 5%. But if many investors want that bond and its price rises to ₹1,100, the yield drops to 4.5%. This is common during a crash when people rush into bonds for safety.

Should You Invest in Bonds During a Crash?

If you want to reduce risk and protect your money during a crash, bonds can be a good choice — especially government or high-quality corporate bonds. They add balance to your portfolio and reduce the impact of equity market volatility.

However, be careful with high-yield or lower-rated corporate bonds, as they may lose value or even default during a severe downturn.

How to Use Bonds to Diversify Your Portfolio

One of the smartest strategies in investing is diversification. Bonds offer an excellent way to diversify your portfolio and reduce risk during market stress.

By including both equities and bonds, you create a cushion. When markets crash, your bonds may rise or remain stable, reducing overall losses and giving you liquidity for future buying opportunities.

Mutual funds that invest in bonds — like dynamic bond funds or gilt funds — are also good options for beginners.

During a market crash, bonds — especially government ones — behave like shock absorbers for your portfolio. They often rise in value when stocks fall, helping you stay financially stable. Understanding which bonds to choose, and how they behave, can make a big difference in your investing journey. So, keep bonds in your long-term plan for safety, diversification, and peace of mind.