Investors may want to continue with fixed income investments – and perhaps even add to them – despite the Federal Reserve's intention to lower interest rates this year.
“Your biggest mistake might be rushing back into stocks before you've thought about all these opportunities in fixed income,” Joanna Gallegos, co-founder and COO of BondBloxx, told CNBC's “ETF Edge” this week.
Although the index has fallen from its peak of more than 5% in late 2023 10-year US Treasury bonds The return has accelerated over the past month. As of market close on Thursday, the yield was hovering near 4.31%. It touched 4.429% on Wednesday, the highest level this year.
To manage interest rate fluctuations effectively, Gallegos suggests that investors look to exchange-traded funds that focus on medium-term bonds.
“If you go into the intermediate space, whether it's in credit or in Treasuries, you take on some risk and you stand to benefit from the total return when interest rates go down,” she said.
Tony Rochte of Morgan Stanley Investment Management recommends a similar medium-term strategy with vehicles such as the Eaton Vance Total Return Bond Exchange Traded Fund (EVTR) under his firm's management.
“It's now 6 years long, with a yield of about 6.6%,” the company's global head of ETFs said in the same interview. “It's a portfolio of the best ideas.”
Rochte also pointed to municipal bond funds, such as the Eaton Vance Municipal Short-Term Income Fund (EVSM), to provide income-generating opportunities.
“We also converted a municipal bond mutual fund last Monday here on the NYSE into an ETF, symbol EVSM, and that's municipal. Again, a 3 1/2% yield, which equates to a roughly 6% taxable equivalent yield. “So these are very attractive rates in the current environment.”
Disclaimer
