What’s Yield Got to Do, Got to Do with It?

This article is relevant to financial professionals who are considering offering model portfolios to their clients. If you are an individual investor interested in WisdomTree ETF Model Portfolios, please inquire with your financial professional. Not all financial professionals have access to these Model Portfolios.

“There is income back in fixed income.”

We first began writing this periodic series of blog posts on “generating yield in an evolving market” back in March 2021 and, most recently, last September. It’s time to revisit.

When we began this series, we were encountering the somewhat anomalous situation of equity dividend yields being higher than bond yields. It was a bleak time for bond investors—rates were near zero, and credit spreads were trading near historical lows.

Well, as Bob Dylan might sing, “The times they are a-changin’.” Let’s take a look.

Let’s start by surveying the current market environment. All eyes are on the Fed—will it continue to tighten in the face of continued strong employment and loose financial conditions? Will it “pivot” and begin easing back off in the face of a slowing economy and signs that inflation is trending downward?

Given recent economic, inflation, and labor reports, the Fed is signaling it will maintain its hawkish position and has recently provided guidance that two, perhaps three more rate hikes of 25 basis points (bps) each in March, May, and June remain a possibility. Even our since-inception strategic advisor, Professor Jeremy Siegel, who earlier in the year believed the Fed had gone too far and needed to pivot back toward easing has acknowledged that recent data is “testing his hypothesis of a quicker “pivot”.

What we do know is the Fed has now shifted into full “data-dependent” mode and will, more than likely, act accordingly. We also hold an experienced belief that the bond market will, ultimately, tell us the answer. But the result, for now, is continued bond market volatility.