Despite the Federal Reserve’s intention to cut interest rates this year, investors may still want to stick with fixed income investments, or even invest more.
“Probably your biggest mistake is rushing back into stocks before you consider all these opportunities in fixed income,” BondBloxx co-founder and chief operating officer Joanna Gallegos told CNBC’s “ETF Edge” this week.
Although down from a peak of more than 5% in late 2023, the benchmark 10-Year U.S. Treasury Bond Yields have accelerated again over the past month. As of Thursday’s close, the yield was hovering around 4.31%. It hit 4.429% on Wednesday, a new high this year.
To effectively manage interest rate fluctuations, Gallegos recommends investors focus on exchange-traded funds that focus on medium-term bonds.
“If you go into the middle, whether it’s credit or Treasuries, you’re going to take on some risk and when interest rates come down, you’re going to benefit from the overall return tailwind,” she said.
Morgan Stanley Investment Management’s Tony Rochte recommends a similar medium-term strategy, including vehicles such as the Eaton Vance Total Return Bond ETF (EVTR) managed by his firm.
“The current maturity is six years and the yield is about 6.6%,” the company’s global head of ETFs said in the same interview. “It’s a best-of-breed creative combination.”
Lochte also noted that municipal bond funds such as the Eaton Vance Short-Term Municipal Income ETF (EVSM) can provide income-generating opportunities.
“Last Monday, we also converted our municipal bond mutual fund into an ETF on the New York Stock Exchange under the symbol EVSM, which is a municipal bond. Again, the yield was 3 1/2%, which is almost equivalent to a 6% taxable gain. rates. So these rates are very attractive in the current environment.”
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