In the driver’s seat

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.