The annual rate for newly purchased Series I bonds may drop below 5% in May, from the current 5.27%. While short-term investors may have better options with CDs or savings accounts, the I bond's fixed rate could still appeal to long-term investors aiming to preserve their purchasing power.
Introducing the new TAXX ETF, an actively managed municipal bond fund. It aims to provide income-generating opportunities in higher interest rate environments. TAXX holds a mix of municipal, corporate, and securitized bonds to enhance after-tax returns. It currently offers a tax-equivalent yield of approximately 6%, making it attractive for tax-conscious investors.
Investors are adjusting their expectations for future interest rate movements due to recent economic data and the Federal Reserve's policy decisions. The market previously anticipated six rate cuts, but now only three are expected. Inflation remains high, leaving investors uncertain about the timing and extent of rate cuts. A cautious approach is advised, with gradual adjustments to bond portfolios recommended. Domestic U.S. fixed income investments are seen as relatively stable, while international investments may provide opportunities but require careful consideration.
The Federal Reserve hinted at possible rate cuts this year, leading to a decline in Treasury yields. However, the Fed will monitor data and adjust if inflation persists or the labor market weakens. The 10-year Treasury yield is stable but could drop in the future. For now, investors see the 5-7 year Treasury bonds as offering attractive yields due to expected inflation moderation and rate cuts. The fixed income market is anticipated to remain stable.
Despite efforts, inflation may take longer to tame, potentially leading to a "deferred landing." The Federal Reserve will remain cautious, keeping interest rates high, which could benefit those earning income from portfolios. Experts advise against changing long-term investment strategies, maintaining diversification and asset allocation, as timing inflation projections accurately doesn't necessarily guarantee better returns.
Investors are shifting towards intermediate-term Treasury bonds (3-5 years) in anticipation of lower rates in the future. This contrasts with last year's preference for short-term bonds. David Botset sees higher yields and price appreciation with intermediate bonds. Nate Geraci cautions against relying heavily on the Fed's next move and suggests a more cautious approach on the yield curve due to potential ongoing inflation concerns.
