U.S. Treasury Yields Hit 15-Year High
Interest rates have risen dramatically over the past year as the Federal Reserve has raised borrowing rates to slow our economy in an attempt to curb inflation. An economic slowdown, an unaffordable housing market with 30-year mortgages now approaching 8%, and a weakened labor market are all consequences of these higher interest rates.
With the yield on the 10-year U.S. Treasury hitting 15-year highs, inflation pressures persisting, and the risk of a recession increasing – the individual investor has understandably become uncertain and nervous.
Successful municipal bond investors have typically been able to weather market cycles and uncertainty by buying high-quality municipal bonds and potentially letting them do what they are supposed to do over time – provide a regular predictable income stream.
Successful municipal investors know market values can go up and down (like they are now!), they can rest easy knowing their interest income does not change with market fluctuations. Additionally, they know their bonds will typically either mature or be called at par value.
It is hard to predict when rates will start coming back down, although the Federal Reserve’s most recently released “Dot Plot” chart suggests that rates should come down gradually over the next three years. However, it is impossible to time market or interest rate moves accurately. And, like you, we do not have a crystal ball.
What we do know is that municipal bond yields are at levels we have not seen for many years. As a result, we suggest investors consider this 15-year high in yields as an opportunity, despite the alarming headlines and ongoing uncertainty. Consider buying long-term, high-quality municipal bonds for their long-term income potential. By doing so, you may find that you rest easier while everyone is nervously guessing, hoping, and waiting.
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Disclosures: This commentary is not a recommendation to buy or sell a specific security. Investing in bonds involves risk including possible loss of principal. Income may be subject to state, local, or federal alternative minimum tax. When interest rates rise, bond prices fall, and when interest rates fall, prices rise. Past performance is no guarantee of future results.
All investing involves risk including the possible loss of principal. Past performance does not guarantee future results. The information above is from sources that we believe to be reliable but we do not guarantee their accuracy or completeness.