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Investor sentiment toward intermediate-term Treasury bonds is changing.
David Botset of Schwab Asset Management is seeing more inflows into bonds with maturities typically between three and five years – and sometimes up to 10 years.
“People are starting to realize that we are at the peak of interest rate hikes,” the company’s head of innovation and stewardship told CNBC’s “ETF Edge” this week. “Therefore, they are looking to reposition the fixed-income portion of their portfolios to take advantage of the potential for interest rates to rise further.”
This is a change from last year when short-term bonds and money market funds saw large inflows. Unlike in 2023, more investors are trying to come up with a game plan for when the Federal Reserve will lower rates – which could happen as soon as this year.
“When interest rates come down to such a point, you not only get income from [intermediate-term] Bonds, you get price appreciation because bond yields and prices are inversely related,” Botset said.
In the middle of the yield curve, he said, “it’s less likely.” [rates] To come down, and you’ll be able to capture that yield for a longer period of time.”
But Nate Geraci, president of The ETF Store, cautions against betting too much on the Fed’s next move.
“It is appropriate to take risks for some period, but I would not go too far beyond this point,” he said. “Risk-Return Dynamics [of] It doesn’t make sense for me to go too far for a long time.”
‘Nothing is confirmed’
Geraci believes that the Fed’s fight against inflation is not over, and this could change the timing of rate cuts.
Geraci said, “If you’re starting to move up the curve, you’re betting that the Fed is really going to do everything right this time. And they very well may… but it’s not a It’s not a sure thing.” “Inflation data may still be on the rise. The last print we saw was higher than the market expected. So, the Fed may remain high for a longer time, and I think as an investor you should be cognizant of that “
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