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Short-term investment-grade bond strategies, with durations in the two-to-three-year range, are well positioned to capture a meaningful yield advantage without the rate sensitivity that has challenged longer duration strategies in recent months. The yield to worst on a diversified short-term bond portfolio currently sits between 4.5% and 5.0%, more than 100 basis points above what bank savings accounts and government money market funds are currently yielding. Although the path for rates is highly uncertain, the range of outcomes in which short-term bonds outperform cash is considerably wider than the range in which they don't.
2025 is fully in gear, and with it, investors may be looking at refreshing their fixed income portfolios. What's more, with the Fed pausing rate cuts for now, many investors may want to adjust for a year of mostly steady rates.
The Federal Reserve keeping rates steady could be the proverbial calm before the storm of interest rate volatility. That said, fixed income investors can mitigate volatility while still capturing yield in the current rate environment with a pair of active, short-term bond ETFs.
In September, where volatility can strike at any time, investors will want the safety cushion of bonds for their portfolio. At the same time, short duration continues to be the default play as the U.S. Federal Reserve still attempts to cool down inflation further.
The U.S. Federal Reserve has time on its side when it comes to adjusting monetary policy in order to counter rising inflation. Fixed income investors don't have the same luxury, but can mitigate rate risk with a short-term strategy.
Still sticking to your New Year's resolutions? The markets sure have — everyone's talking about fixed income right now, and there's still time to resolve to join in.
Have you heard? Bonds are back, with rising rates positioning debt securities from all sorts of subsectors to provide notable yields and long term stability for portfolios beleaguered by the prospect of a looming recession.
Bond markets have been hit with sustained volatility, making them just as unreliable for generating returns as equity markets this year. With inflation still at a record high and the Federal Reserve continuing to aggressively raise interest rates, this volatility doesn't appear to be going anywhere anytime soon.