Short and sweet

Question: How might the end of the Fed's tightening impact ultrashort funds?

Nicholas Tripodes: There's a lot of very attractive securities in the short duration space. If you think about where we are from an interest rate standpoint, 2-Year Treasuries are close to 5%. So there's a lot of opportunities for investors across investment-grade corporates and asset-backed securities. If investors are willing to take a little credit risk, there's also opportunities in mortgages and Treasuries. A few years ago, for an investor to get 3% to 4% in high yield or overall yield, they had to invest in junk bonds or high-yield securities. Now you can buy very high-quality investment-grade securities, some of them yielding 5% with no credit. And if you want to take credit risk, there's opportunities to invest in yields between 6% and 8%. So this really has provided a nice opportunity, especially where we were a couple years ago in the zero interest rate environment. If we think the Fed is done or even if they move another 25 basis points or so, there's going to be very minimal impact to prices. Obviously when rates rise, and we saw that happen in 2022 with a significant increase in interest rates, we saw prices drop materially and it was a very tough environment, one of the toughest bond environments in 40 or 50 years. Now we think there's limited downside to maybe a slight increase in rates or where we are with very stable rates. And if we see rates go down in 2024 possibly, then that just provides a nice boost to investors in the short end of the yield curve, especially with price increases if you see a decline in rates next year. So the positive carry an investor can earn, whether it's taking credit risk or no credit risk on the short end of the yield curve is a great opportunity and one of the best that we've seen in several years in the fixed