Fixed Income Q4 2021

Because bond prices typically move in the opposite direction of changes in interest rates, rising rates pose a potential headwind to expected bond returns. In cases where bonds are held until final maturity, this is not a risk. The benefit of rising interest rates to bond investors is that maturing bonds can be reinvested at higher rates. If economic and employment conditions remain favorable, Fed rate hikes will likely continue into next year. After living with short-term rates at or close to zero for years, this is welcome news.

Howland Capital’s approach remains steady. Even with low interest rates, short-term bonds and bond funds make sense within a portfolio to provide capital for distribution needs and generate reliable
income. In times of market stress, high-quality bonds are less volatile than stocks.

Bonds also tend to be negatively correlated to stocks, with bond prices moving up when stock prices fall. Though not always the case, this relationship can help preserve capital. The credit component of corporate
bonds remains very favorable; most corporate bond issuers have strong and stable balance sheets as well as easy access to additional liquidity and capital. We pay close attention to the credit quality and issuer risk of the bonds held in our portfolios and expect credit conditions to remain very strong in the years ahead.

More Insights

Economic & Market Commentary

Fixed Income Q4 2022

The past year has been difficult for fixed income investors, with the sharp rise in bond yields leading to a fall in bond prices. After an extended period of low interest rates, bond prices corrected sharply throughout the year as the Fed raised rates and increased its forward projections for those rates.
Read more

Economic & Market Commentary

Equities Q4 2022

U.S. and global stock markets experienced solid gains in the fourth quarter but remained significantly in the red to end 2022. The S&P 500 Index gained 7.5% in the quarter including dividends, recouping some lost ground but ending the year down 18%. U.S. stock market performance was bad in 2022 no matter how you cut it. However, it is interesting to note that the Dow Jones Industrial Average, which is a stock price-weighted index of only 30 large companies, returned a solid 16% in the fourth quarter and declined only 6.9% in 2022, faring much better than the S&P 500.
Read more

Up Next