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Chart of the week

Rates are higher. And significantly more volatile.

As rates have risen, so has rate volatility. This week’s chart looks at the daily changes in the two-year Treasury yield over the past year.

February 24, 2023 | 2 minute read

Daily change in 2-year Treasury yield

Source: Bloomberg Finance, L.P., as of February 22, 2023.

  • After racing out of the gates in January, the traditional 60/40 portfolio has stepped back in February as the Bloomberg Agg has given up nearly all its year-to-date gains, while the S&P 500 is down approximately -1.4% month to date.1
  • Amid recent strong economic data, expectations for the Fed’s terminal (peak) rate continue to move higher as markets assess the course of Fed policy amid sticky inflationary pressures.
  • Most notably, short-term rates have climbed relentlessly this year, with the 6-month and 2-year U.S. Treasury notes each hitting their highest point since 2007.1
  • Higher yields represent a potentially more attractive entry point for income-oriented investors. However, shorter-dated Treasuries and other traditional corporate fixed income investments carry significantly more volatility today versus a year ago.
  • With rate volatility notably higher, investors would be wise to consider the new risk-return tradeoff that even shorter-dated income investments may carry.

  • As of February 22, 2023. 60/40 portfolio refers to 60% S&P 500 Index and 40% Bloomberg U.S. Aggregate Bond Index.

The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such market commentary. The chart of the week should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

Any projections, forecasts and estimates contained herein are based upon certain assumptions that the author considers reasonable. Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. The inclusion of projections herein should not be regarded as a representation or guarantee regarding the reliability, accuracy or completeness of the information contained herein, and neither FS Investments nor the author are under any obligation to update or keep current such information.

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