Investor sentiment towards medium-term government bonds could change.
Schwab Asset Management’s David Botset sees more inflows into bonds with maturities typically between three and five years – sometimes even up to 10 years.
“People are starting to realize that we’re kind of at the peak of rate hikes,” the company’s head of innovation and governance told CNBC’s “ETF Edge” this week. “Therefore, they want to reposition the fixed-interest part of their portfolio in order to benefit from the next likely interest rate development.”
That’s a change from last year, when short-term bonds and money market funds saw large inflows. Unlike 2023, more investors are trying to come up with a plan for the Federal Reserve to cut interest rates – which could happen as early as this year.
“If interest rates go down at a point like that, you don’t just get the income from that [intermediate-term] There is an increase in the price of bonds because yields and prices of bonds are inverted,” Botset said.
It is “less likely” in the middle of the yield curve, he added [rates] decrease, and you will be able to achieve that return over a longer period of time.”
However, Nate Geraci, president of The ETF Store, warns against betting too heavily on the Fed’s next move.
“It makes sense to take some duration risk, but I wouldn’t go too far on the curve,” he said. “The risk-reward dynamic [of] It makes no sense to me at all to go too far out on the long end.
“Not a sure thing”
Geraci believes that the Fed’s fight against inflation is not over and that this could change the timing of rate cuts.
“When you start to get the hang of it, you assume that the Fed will actually get it right this time. And that’s certainly possible… but that’s not a sure thing,” Geraci said. “Inflation data could continue to be hot. The last value we saw was higher than the market expected. So the Fed could stay at higher levels for longer, and I just think as an investor you have to be aware of that.”
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2024-02-24 16:14:15
www.cnbc.com
