Simple explanation
A bond can calm a portfolio, but only if the currency and interest-rate environment remain credible.
Buying a government bond means lending money to a government. It promises interest, then repayment. That contract can be useful when inflation falls and rates decline. It can hurt when rates rise or when inflation destroys purchasing power.
A bond carries a promise of interest and repayment by the issuer.
Inflation and rising rates can weaken a yield that looks reassuring on screen.
Before the displayed yield, the real question is the purchasing power recovered at the end.
Simple reading
You lend money. The state promises interest, then repayment. As long as the currency keeps its quality, this contract can be very useful.
The danger begins when the promised yield is too low, inflation accelerates and rates rise. The contract can be honored on paper while losing real purchasing power.
When inflation is contained, the currency remains credible and rates can fall. In that setting, bonds can really cushion a portfolio.
When rates have been pushed too low and inflation forces them back up. In that case, the contract can be honored nominally while destroying purchasing power.
France
The French case shows the classic trap: bonds rise for a long time when rates fall, then suffer when inflation and rising rates arrive together.
Chart 1
Base 100 in 2000. The red line removes French inflation. The grey line shows why looking only at nominal value can be falsely reassuring.
Chart 2
When this rate falls, older bonds breathe. When it rises quickly, they become less attractive and their price falls.
Estimated final purchasing power since 2000, after French inflation.
The real portfolio peaks around 2019, when rates are very low.
Shock between 2019 et 2023, when rates rise.
The rate even falls to -0.3% in 2019, then rises again. That rebound pushes older bonds.
Understand this before buying
A bond you already own is an old contract. Its coupon is fixed. If the market now offers a better rate, your old contract must become cheaper to be competitive again.
Imagine a bond paying 1% per year. If new bonds pay 4%, nobody wants to pay the same price to receive only 1%. The old bond's price falls until it offers a comparable yield.
If your bond pays 4% and new bonds pay only 1%, your old coupon becomes valuable. Buyers are willing to pay more to get it: the bond price rises.
The promised repayment does not necessarily change. What changes is the price at which the market is willing to buy that contract before maturity.
Bonds were very useful when rates were falling. They become much less comfortable when the starting point is too low.
The question is not only: will the state repay? The question is also: with what purchasing power will it repay?
Turkey
In a country where the currency loses value too quickly, a bond can pay interest and still be insufficient. The real test is purchasing power after inflation.
Chart 3
Base 100 at the start, in real purchasing power. Here the comparison is between gold, very short-term bonds, very long-term bonds and regular cash held in TRY.
Final purchasing power of the bonds very long-term bonds in the observed case.
Even a very long-term bond can fall sharply in purchasing power when inflation dominates.
In this case, gold ends far above bonds very long-term bonds.
This is money held without remuneration, in real purchasing power.
Before choosing, the main point is to understand whether the setting is closer to inflation or deflation, so the defensive sleeve can be read as leaning more toward gold or bonds.
Historical example built from official Borsa Istanbul and Turkish central bank series, then adjusted for Turkish inflation. The cash sleeve corresponds to short-term interest-bearing cash, not TRY banknotes left under the mattress.
