Short and sweet Short and sweet\images\insights\article\road-pine-trees-small.jpg December 8 2023 December 8 2023

Short and sweet

 A decline in rates could boost the short end of the yield curve.

Published December 8 2023
My Content
Video Transcript
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
Tags Fixed Income . Interest Rates .

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.

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

High-yield, lower-rated securities generally entail greater market, credit/default and liquidity risks and may be more volatile than investment-grade securities.

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.

Issued and approved by Federated Investment Management Company