Bond Index Update

September 22, 2020

Happy Tuesday morning.

The Federal Reserve, along with Central Bankers across the globe, have concentrated all of their monetary firepower on keeping interest rates low. When asked about when rates may start to increase, the rumored comment was that “We are not even thinking about thinking about raising interest rates…” Rates are likely to stay low until the end of 2022 or 2023. How low is low? Well, a ten year loan to Uncle Sam currently returns less than 7/10ths of 1 percent. A five year insured CD is in the area of ½ of 1 percent interest per year. If you take on more risk, you can boost your yield. A little. Ritter Daniher does not believe that taking extra risk to chase yield makes financial sense right now. It is a very crowded trade, with lots and lots of investors ignoring the rule that in bonds, it is every bit as important to have a return OF your money as well as a return ON your money.

Low rates have tremendous benefits to borrowers, and we can see the impact on the housing market which has been surprisingly strong of late. Our advice to clients has been to consider retiring any debt that you may hold personally. It is an instant “win” in that by using cash to eliminate debt, you are saving the interest which is probably much greater than the low return on money market funds. RDFA will continue to hold high quality fixed income investments with an emphasis on shorter term instruments. If you are retired and need income for living expenses, we will hold cash reserves. Bonds and cash provide stability, and balance to stocks, which have proven this year that volatility comes with the territory.

To best compare the performance of our fixed income investments, we have switched from using the Bloomberg Barclays Global Aggregate Bond Index to the Bloomberg Barclays 1 to 5 year US Bond Index that more accurately represents the quality and duration of the funds in your portfolio.

Please let us know if you have any questions, or if there is anything that we can be doing for you. We are here to help you navigate through these crazy times that we are living in.