Category: Fixed Income

With market yields moving higher, investors have greater potential

The prospect of rising interest rates poses both a challenge and an opportunity for fixed income investors.

As the labor market tightens and inflation pressures persist, the Federal Reserve has talked more openly about tightening monetary policy.

As the economy and labor market improve, we expect a return to a more normal monetary policy.

In the US, the yield on the 10 year U.S. Treasury note ended the quarter at 1.74%, up from 0.70% a year ago.

Interest rates fell sharply in 2020 as the Federal Reserve expanded it’s purchase of government bonds and investor demand for safe and liquid dollar-denominated assets rose.

The level of income available to investors from bonds has been falling ever since the Great Recession of 2008 –

Consistent with a sharply contracting economy, bond yields have fallen to record lows.

Interest rates on money market funds fell close to zero during the quarter, after several cuts in the target policy rate set by the Federal Open Market Committee under Chair Jerome Powell.

After cutting the policy rate three times in 2019,