Bonds are Back and We're Buying
November 18, 2022
We’re taking advantage of higher interest rates through the purchase of short-term treasuries with cash in accounts, so that investors get a higher yield on their cash. Investors have seen and will continue to see an increased allocation to treasuries in their portfolios. We recently bought a 3-month treasury for investors yielding 4.1%, well above the yield paid on cash accounts (which is typically below 1%).
As fed chair Bullard suggested yesterday, interest rates look set to continue rising through the rest of 2022, with the federal reserve likely to increase the federal funds rate by another 50 basis points in December.
This has put pressure on asset prices so far this year despite the recent relief rally. The S&P500 is now down 16% year to date and the US aggregate bond index (low risk bonds) is down 13.3% year to date. However, interest rate rises have created opportunities in government bonds.
Bonds are back
We pointed out two weeks ago that bond yields have been on the rise.
We’re investing cash in accounts into short term treasuries to increase income received and take advantage of the higher yields we’re now seeing.
The risk/return profile of bonds have become more attractive as investors earn higher income and have higher potential capital gains when bond yields go up.
Different investors have different circumstances and select investors may not see the changes mentioned in their portfolio. Where appropriate, investors will continue to see a small amount of cash reserves in their accounts. The short-term nature of a three-month treasury gives us flexibility in our ability to deploy capital in the most efficient way when the term of the bond is up. In three-months’ time, we will be able to reinvest in the most compelling opportunity at that point in time.
Disclaimer
The information presented should not be considered personalized investment, financial, legal, or tax advice. This notification is not an offer to buy or sell, or a solicitation of any offer to buy or sell, any of the securities mentioned herein. Certain statements contained herein may constitute projections, forecasts, and other forward-looking statements, and are based primarily on assumptions applied to certain historical financial information. Certain information has been provided by third-party sources, and although believed to be reliable, it has not been independently verified, and its accuracy or completeness cannot be guaranteed. Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as of the date of this document and are subject to change. Past performance is not indicative of future performance. Principal value and investment return will fluctuate. There are no implied guarantees or assurances that the target returns will be achieved, or objectives will be met. Future returns may differ significantly from past returns due to many different factors. Investments involve risk and the possibility of loss of principal. The values and performance numbers represented in this report reflect management fees. The values used in this report were obtained from sources believed to be reliable. Performance numbers were calculated by Black Diamond using the data provided by your custodian. Please consult your custodial statements for an official record of value.
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