In the driver’s seat In the driver’s seat\images\insights\video\man-dog-driving-small.jpg February 23 2024 February 23 2024

In the driver’s seat

Income and duration lead total return potential.

Published February 23 2024
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Video Transcript
Question: What is the role of income in the current rate environment?
Karen Manna: Income in the current rate environment has become attractive. The Federal Reserve took the federal funds rate from zero to 5.5%, starting their campaign in March of 2022 and ending, now we know, and on pause, as of July of 2023. But that's a very different rate environment than where we've been for most of the past decade. The last time the Fed tried to reduce rates off of that zero bound was 2015 through 2018, so a much longer time period. And they took their reference rate from zero to 2.25% over that time period. So income in fixed income is a critical part of the total return and income is very important to investors. So now income is back at a level of 5.5% on the front end for your reference rate. And then moving down the curve, out to 10 years or so, you're looking at 4% or more, depending on the individual security that you choose to add to a portfolio. In this case, the income drives more total return, and as we add duration, the potential for total return increases along the portfolio.
Tags Fixed Income . Monetary Policy .

Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

Yield Curve: Graph showing the comparative yields of securities in a particular class according to maturity. Securities on the long end of the yield curve have longer maturities.

Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices.

Past performance is no guarantee of future results.

Issued and approved by Federated Advisory Services Company