Fixed Income Q1 2022

Interest rates are rising – quickly – making bonds more attractive. For example, the 2-year yield on U.S. government bonds increased nearly 2.4 percentage points over the last twelve months, including nearly 1 percentage point in the last month alone! The rise in bond yields in the past few months has created both a challenge and an opportunity for investors. As the Fed pivots toward raising rates to combat high inflation, market expectations drive up bond yields. Given the already low level of yield offered by high-quality bonds, bond prices have come under pressure as investors recalibrate their return expectations. With less income to cushion the price impact, bond “durations” are relatively high for a given maturity, which means the price impact of interest rate changes is greater. Returns for most fixed income sectors were negative through the first quarter of the year due to the increase in market yields, which results in a decline in bond prices. With market yields moving higher, investors have greater potential to generate more income from bond portfolios. We have generally favored exposure to short and intermediate maturity bonds and bond funds in client portfolios for the following reasons: shorter maturity bonds are less subject to price changes as market yields adjust, while bond funds are positioned to benefit in a variety of ways from better reinvestment opportunities and active management.

More Insights

Economic & Market Commentary

Equities Q4 2023

If ever there was a reminder to avoid market timing and stay invested in accordance with one’s long-term goals, 2023 was it! Twelve months ago, few, if any, investors predicted such significant gains for stocks in 2023.
Read more

Economic & Market Commentary

Fixed Income Q4 2023

Following a difficult year in 2022, the bond market rebounded in 2023. As the year progressed, the Fed finally paused its aggressive rate hiking campaign and appears set to ease in the year ahead.
Read more

Up Next

Insights