Bond ladder - today

Bond Ladder - 2 years later

The potential for income, diversification, and reducing portfolio volatility are reasons to consider bonds in any environment, even when interest rates are expected to rise. In a rising interest rate environment, short-term bonds may perform well but generate little income, while longer-term bonds may experience price declines but generate more income. One fixed-income strategy worth considering in such an environment is to own a bond ladder like the one in this chart, offering a potential means to match maturities and funds with expected needs.

Key points

• The economy is on a higher-growth/higher-inflation path than it has been for a long time. While the Fed has wanted to see stronger growth and has signaled tolerance for inflation, it is being tested by the markets.
• Long-term yields are moving up to reflect stronger growth, but inflation expectations remain subdued. Markets realize that the Fed can reduce inflation if it wants to by tightening policy.
• We expect intermediate-to long-term rates will continue moving higher, so consider keeping portfolio duration below benchmark.
• A ladder might make sense: the yield curve is still steep enough to reinvest at higher yields and earn more income over time. Ladders tend to be our “go to” strategy since they help to hold down volatility and may keep clients from trying to time the market.

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