The formerly drama-free investment is now causing some concern

Federal Reserve Chairman Kevin Warsh gestures as he speaks last week at Jackson Hole with, from left, Tiff Macklem, governor of the Bank of Canada, and Andrew Bailey, governor of the Bank of England. Many financial advisers are giving Warsh the benefit of the doubt for now.

For decades, individual investors treated bonds as virtually worry-free stabilizers in their portfolio. Unlike stocks, bonds produced predictable income with minimal risk.

Recent events have tested that assumption.

In mid-August, a U.S. bond-market selloff - especially in longer-dated Treasurys - led to price declines and yield rises. The result: The 30-year Treasury yield BX:TMUBMUSD30Y hit a 19-year high above 5.3%. The Treasury Department responded by doubling to $4 billion the size of its buybacks of longer-term bonds. The result: The 30-year Treasury yield fell sharply.

This unusual volatility comes at a time when the Federal Reserve has a new leader. How will Kevin Warsh, the 56-year-old newly minted Fed chairman, handle this uncharacteristically rocky period for bonds?

Financial advisers aren't too worried, especially after markets reacted calmly to his speech last week at the annual Jackson Hole Economic Policy Symposium.

"I think it's more of a 'be aware, not worried' situation," said Josh Norris, a certified financial planner in Jackson, Miss. "Warsh is just one vote. And so far he hasn't been completely unreasonable or academically disingenuous."

The overall economy is a greater factor than any one person, Norris said. So changes in the composition of the Federal Reserve Board of Governors shouldn't unduly influence investment decisions.

"I don't think a new Fed chair means investors should suddenly adopt a completely new bond strategy," said Scott Bishop, a Houston-based certified financial planner. "I think Warsh is an intellectually honest person, but we'll see. He may be leaning toward what [President Donald] Trump thinks politically, but I don't think he's taking mandates from him."

Yet some market observers question the Fed's independence in the current climate. Congress legally requires that the Fed board sets monetary policy while seeking to fulfill its dual mandate of stable prices (with a target of 2% annual inflation) and maximum sustainable employment.

Focusing on jobs and inflation free of political interference gives the Fed credibility. And credibility is what keeps long-term interest rates anchored, said Jeff Judge, a certified financial planner in Forest Hill, Md.

"But if markets feel Warsh is Trump's puppet and bending to his will, that can be really bad," Bishop said. "Political pressure intended to produce lower rates could ultimately contribute to higher long-term rates if it undermines confidence in the Fed's commitment to price stability. If investors think inflation will go up, they'll demand higher interest rates for longer-dated Treasurys."

Like many advisers, Bishop has continued to view bonds as a key source of portfolio stability. But, he said, he distinguishes between short- and intermediate-term bonds that offer steady income, liquidity and diversification and long-duration bonds that pose more uncertainty.

Investors buying a 20- or 30-year Treasury bond want to be compensated for locking up their money as inflation concerns, fiscal deficits and an ever-increasing national debt loom. That makes long-duration bonds more volatile.

"Investors need to be more thoughtful about where they take duration risk," Bishop said. "They shouldn't assume every bond provides the same kind of ballast."

Many advisers are giving Warsh the benefit of the doubt, at least for now. Selected by Trump to replace Jerome Powell, Trump's pick early in his first White House term, Warsh has only been in the job since May 22.

"I'm not concerned about the erosion of Fed independence at the present time," said Ed Mahaffy, a certified financial planner in Little Rock, Ark. "Warsh seems to be of the opinion that AI will be disinflationary. He's waiting to see if there's evidence of that."

If the Fed chair is proven correct over the next six months or year - and inflation stabilizes or even falls thanks to productivity gains from an artificial-intelligence-led boom - that will give Warsh political cover to not raise interest rates and perhaps to cut them, Mahaffy said.

Stepping back and looking at the economy through a wider lens, the picture is reassuring. Advisers don't see the recent bond selloff as a red flag indicating a tanking economy.

"Consumer data remains relatively resilient," Bishop said. "Major retailers continue to report solid underlying activity."

While the new Fed chair must navigate a period of uncertainty, there's no urgency to overhaul your portfolio and fret about high-quality fixed-income bonds, especially shorter-duration offerings. But if yields on the 10-year Treasury BX:TMUBMUSD10Y quickly spike above 5% (the current rate is around 4.66%), a bit more worry may be warranted.

-Morey Stettner