Chart of the Week

The chart shows the 10-year U.S. Treasury yield’s rise of almost 70 basis points (100 basis points = 1%) since the Federal Open Market Committee initiated rate cuts at its September 17-18 meeting. This spike puts yields at an attractive level relative to their 20-year averages.

While we see the potential for yields to move higher, the economic data and the bond market’s movements before and after the November 5 election have highlighted U.S. Long Term Taxable Fixed Income as a potential landing spot for excess cash and cash equivalents.

We see risks to the upside for U.S. interest rates, but we believe the run-up in long-term bond yields in the past two months justifies our neutral stance on U.S. Long Term Fixed Income. Given our expectation for falling yields in short-term and cash equivalents, we believe that locking in yields on long-term bonds may replace yield generation as the Federal Reserve continues to cut rates.

Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. Bonds are subject to market, interest rate, price, credit/default, liquidity, inflation and other risks. Prices tend to be inversely affected by changes in interest rates. High yield (junk) bonds have lower credit ratings and are subject to greater risk of default and greater principal risk. Although Treasuries are considered free from credit risk they are subject to other types of risks. These risks include interest rate risk, which may cause the underlying value of the bond to fluctuate.

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