May 22, 2023
WILL HISTORY RYHME? A FED PAUSE HAS BEEN GOOD FOR FIXED INCOME
Lawrence Gillum, CFA, Chief Fixed Income Strategist, LPL Financial
Adam Turnquist, CMT, Chief Technical Strategist, LPL Financial
Economists like to remind us there is no such thing as a free lunch. In investment parlance, that just means all investments carry risk—even cash. And the big risk with cash is reinvestment risk. That is, while short-term rates are currently elevated, the risk is these rates won’t last and upon maturity, investors will have to reinvest proceeds at lower rates. And if this current cycle follows history, we could see lower core bond yields over the next year, which would mean cash-only investors may miss out on these higher yields. LPL’s Strategic and Tactical Asset Allocation Committee (STAAC) recommends investors maintain a neutral duration relative to benchmarks with the expectation that Treasury yields are likely headed lower (or at least not much higher) over the next few quarters.