A recent Wall Street Journal article highlights the opportunity investors have in fixed income currently. Yields on bonds have risen dramatically over the last 18 months and and are now at 20 year highs. While that is painful for holders of bonds at lower yields (prices fall when yields rise), for new investors in fixed income it’s an incredible opportunity
Asset managers have been counting on what BlackRock calls a “generational opportunity” in the bond market, now that yields are at decade-plus highs.
But what few people know about is that the fixed income we have in our payment streams offers an even greater opportunity. The article talks about traditional corporate bonds and Treasuries but we have still higher yields from top quality companies like MetLife, Berkshire Hathaway, and other A- rated insurance companies.
No one can time a market perfectly. That’s why when you’re investing over time, dollar cost averaging is your friend. When you’re converting your assets into income, you should likewise average-in to various different fixed income investments.
I can’t tell you if this is the peak of the interest rate cycle, but I can tell you yields are higher now than they have ever been in the 12 years that I have been involved in this marketplace.
Is this as good as it gets? I don’t know. But I DO know that it’s really good right now.
Supply and demand work together. When demand increases for bonds and fixed income, rates will fall and prices will rise. Institutional money managers like BlackRock project assets under management at its bond exchange-traded funds to triple to $2.5 trillion by 2030, and increased demand for our payment streams will likewise raise prices and lower yields. That is simply the market at work.
“When you really get confirmation and clarity that the Fed is done, we would expect to see more meaningful movement of flows into fixed-income,” said Morgan Stanley analyst, Michael Cyprys.
We could get that clarity any day, and for me the bottom line is this: It’s a good time to get into fixed income!