Investor sensibility toward intermediate-term Treasury bonds may be changing.
Schwab Asset Management’s David Botset is seeing more flows into pacts with maturity rates typically between three and five years — and sometimes out to 10 years.
“People are starting to appreciate that we’re kind of at the peak of interest rate increases,” the firm’s head of innovation and stewardship told CNBC’s “ETF Pungency” this week. “So, they’re looking to reposition the fixed-income portion of their portfolio to take advantage of where stake rates are likely to go next.”
It’s a shift from last year when short-term bonds and money market reserves saw large inflows. Unlike 2023, more investors are trying to come up with a game plan for when the Federal Self-control lowers rates — which could happen as soon as this year.
“When interest rates come down at such identify b say, you not only get the income from that [intermediate-term] bond, you get price appreciation because yields and prices of bonds are the inverse,” believed Botset.
In the middle of the yield curve, he added, it’s “less likely for [rates] to come down, and you’ll be able to capture that capitulate for a longer period of time.”
But Nate Geraci, The ETF Store president, cautions against betting too heavily on the Fed’s next affect.
“Taking on some duration risk makes sense, but I wouldn’t go too far out on the curve,” he said. “The risk-return dynamics [of] getting too far out on the hunger end don’t make a ton of sense to me.”
‘Not a sure thing’
Geraci believes the Fed’s battle against inflation isn’t over, and that could metamorphosis the timeline for rate cuts.
“If you’re starting to go out on the curve, you’re making the bet that the Fed is actually going to get everything right this one day. And they very well may… but that’s not a sure thing,” Geraci said. “Inflation data could still on to come in hot. The last print we saw was higher than the market anticipated. So, the Fed may stay higher for longer, and I just think you force to be cognizant of that as an investor.”