‘First-time investors in long bonds may be shocked by how much money they could lose in a short period of time, should rates continue to rise,’ one wealth manager said
What will happen next to bond yields and interest rates? And how should that influence what investors do with their spare cash?
The yield on the ten-year Treasury note BX:TMUBMUSD10Y climbed to 4.86%, up from 4.715% Thursday afternoon, and up from 3.82% a year ago. The yield on the 30-year bond BX:TMUBMUSD30Y reached 5.01%, up from 4.88% on Thursday and up from 3.78% a year ago – heading Friday morning for the highest level since August 2007.
“Bond yields rose primarily because the Fed pivoted to a much more hawkish position, as investors anticipated aggressive interest rate hikes to rein in inflation,” Bill Merz, head of capital markets research at U.S. Bank Wealth Management, said this week. In the buy-and-hold approach, “knowing when you might need access to this money is key to deciding where to put it,” said Greg Vojtanek, owner Fade In Financial, a Los Angeles-based financial planning firm. “If you need the cash for a down payment on a house in the next 18 months then placing it in a 2- or 3-year Treasury probably won’t work.”
Treasury bills, which come due within a year, have been a yield-producing place to put cash. Yields on T-bills BX:TMUBMUSD06M of varying length are over 5%, up from roughly 4.5% around the start of the year. Of course, that’s just one projection — and determining the direction of interest rates and timing is tricky.
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