Investors may want to stick with fixed income investments – perhaps even increasing them – despite the Federal Reserve’s intention to cut interest rates this year.
“Your biggest mistake may be jumping back into equities before you consider all these fixed-income opportunities,” BondBloxx co-founder and COO Joanna Gallegos said on CNBC’s “ETF Edge” this week.
Although this figure was below its peak at the end of 2023 (more than 5%), 10 Year US Treasury Notes yields have accelerated again over the past month. As of Thursday’s market close, the yield was hovering around 4.31%. On Wednesday it reached 4.429%, the highest for this year.
To effectively manage interest rate volatility, Gallegos suggests investors look at exchange-traded funds that focus on intermediate-term bonds.
“If you move into the intermediate sector, whether it’s credit or Treasuries, you’re taking on some risk and will benefit from the overall reverse tailwind when rates come down,” she said.
Morgan Stanley Investment Management’s Tony Rochte recommends a similar mid-term strategy for instruments like the Eaton Vance Total Return Bond ETF (EVTR), which his firm manages.
“Right now it’s a 6-year duration and a yield of about 6.6%,” the company’s global head of ETFs said in the same interview. “It’s a portfolio of the best ideas.”
Rochte also pointed to municipal bond funds such as the Eaton Vance Short Duration Municipal Income ETF (EVSM) as income opportunities.
“We also converted a municipal bond mutual fund last Monday here on the New York Stock Exchange into an ETF under the symbol EVSM, which is a municipal fund. Again, a 3 1/2% yield, almost 6% equivalent taxable yield. So these are very attractive rates. under current conditions.”
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