Return of the Bond Investment?

Don't look now, but it looks like bonds are finally begining to generate some reasonable returns. An index investor such that I am, I hold the bond portion of my portfolio in Vanguard's Total Bond Market Index (NASDAQ: VBMFX).

The sad news is that over the past few years, with interest rates on the upswing, returns on this investment have been dismal. To be more specific, the average annualized returns before taxes on distributions was 3.47% over the past 3 years. The technical term: URGGHHH, comes to mind.

It looks like there may be some light at the end of this tunnel. In the past year, the fund has returned 5.93%, which is still below its 10 year average annual return, but is at least respectable. Much of this increase in returns has happened in the past two months (1.42% year to date), and with people now talking about the Fed cutting interest rates, are bonds getting ready to stage a big rally?

Who knows? Quite frankly, who cares? I am an index investor that follows a strict asset allocation straetgy. I am not buying, selling or timing the market. So why am I talking about this? Well, while I don't trade, it's still fun to think about these things and to observe the market. While I control my urge to trade, controlling my urge to talk is somewhat more difficult.