In contrast to earlier this year when 10-year Treasury yields were hovering around 3.5%, the recent jump in interest rates toward 5% has resulted in some attractive opportunities across several corners of the fixed income market. Below we highlight four compelling investments for the remainder of 2023 and into 2024.
1. Real Yield (TIPS): Treasury Inflation-Protected Securities (TIPS) currently offer compelling value with 10-year real yields at approximately 2.5%. This is the first opportunity investors have had to lock in real returns above 2% since the Financial Crisis and the top 25th percentile of yield since TIPS were first issued in 1997. Despite increased nominal yields and inflationary pressures — particularly given a 34% surge in oil prices since June — inflation expectations have remained relatively stable. If inflation expectations were to rise, TIPS could experience a significant increase in returns. Conversely, if nominal yields were to decrease while inflation expectations remain steady, TIPS returns could be on par with those of Treasuries.