Bond yields keep rising. How income investors can best take advantage of the moves
As Treasury yields reach multiyear highs, income investors should employ these winning moves.
TL;DR
- Benchmark 10-year Treasury yield hit levels not seen since 2007, and the 30-year Treasury touched highs not seen since 2004.
- Rising yields are attributed to federal debt, deficit, higher oil prices, stubborn inflation, economic strength, and the likelihood of further Federal Reserve rate hikes.
- Short-duration bonds (up to five years) are recommended to avoid significant interest rate risk.
- Investment-grade corporate bonds and floating-rate corporates (one to three years) are attractive for their yield and lower interest rate risk.
- Floating-rate bank loans offer higher yields (north of 7%) for those willing to take on more credit risk.
- The 'sweet spot' for some experts is the five- to seven-year part of the curve, favoring investment-grade corporates.
- Investors are advised to build positions incrementally rather than making large, sudden allocations.
- Within credit, investment-grade corporate bonds and agency mortgage-backed securities are favored, along with Treasurys and high-yield corporate bonds on the shorter end.