Nick Goetze discusses fixed-income market conditions and offers insight for bond investors.
A confluence of events has given bond investors another great opportunity to take advantage of higher yields. The ten-year Treasury yield is well over 3.5%, driven by fears of a Federal debt ceiling impasse, lingering higher inflation, and some sectors of the banking industry showing instability. Corporate and municipal bonds have followed suit hitting some recent highs that may align well with the income needs of investors looking for safety with very attractive income levels. Take advantage of this opportunity. These levels are likely to change.
As of Tuesday morning, it looks like a Federal debt deal will be reached. The Treasury market is already starting to rally (yields down). As more and more investors look to take advantage of municipal bond yields approaching 5% tax-free, the sheer size of investor demand will likely push yields lower. Corporate bond yields will likely follow Treasury yields back down if that trend continues. We have seen this pattern before.
For IRA investments five to ten years out, the corporate bond and mortgage-backed markets are offering high-credit quality bonds in excess of 5%. If you are looking to build long-term tax-free income portfolios, you can earn well over 4%. These are levels that we would have only been able to dream about for the past ten-plus years.
Where are the opportunities for the baby boomers? The largest generation in the history of our country is in or heading into retirement. They control more wealth than any previous generation. Many of these baby boomers are looking for ways to generate income/cash flow in retirement that they can live on. Your financial advisor can help develop and maintain custom portfolios that will perform regardless of interest rate moves with the comfort of controlling the outcome as to when the principal is returned.