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.
