Fixed Income Q1 2023

With the rapid increase in short-term interest rates, we are finding better opportunities to earn income from the fixed income component of portfolios. In fact, the yield on short maturity bonds currently exceeds that on intermediate and long maturity bonds. This phenomenon exists because the yield curve is inverted, as investors predict short rates will fall in the coming years as the Fed eventually shifts from a tightening to an easing policy. Corporate balance sheets are generally in very good shape, especially for the types of companies we tend to favor. Accordingly, we are able to add incremental yield from new bond purchases in the range of 4.0-5.0%. As inflation continues to fall, the “real” return of this income stream also becomes more valuable.

In addition, the yield on our Cash Liquidity Program (CLP) now stands at 4.75%. The CLP consists of a consortium of bank demand deposits that are fully guaranteed by the FDIC. While having cash invested in the CLP makes sense for shorter term needs, we still prefer bonds and bond ETFs to lock in higher yields for longer periods of time. As we approach the end of the Fed’s tightening cycle, prices of newly-issued bonds may eventually benefit from falling rates – a trend that we haven’t seen in quite a while. There is therefore the potential for greater total return beyond just the

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