Broker Check


October 23, 2023


Better Opportunities for Bonds

After experiencing an extended ultra-low interest rate environment from the 2008 Financial crisis through early last year, interest rates have now moved significantly higher. During the extreme low-rate cycle, bonds were not very attractive. TINA is an acronym used by many to describe this period, There Is No Alternative to large cap stocks that not only had higher yields than bonds but also the ability to appreciate in value over time. On the other hand, longer dated bonds had nowhere to go but down in price and higher in yield.

US Government 10 Year Treasury yield going back to 1980

Bloomberg 10/20/2023

We have now moved away from TINA and into TARA. TARA is an acronym for There Are Reasonable Alternatives to the stock market. During the past few years, we made sure to buy shorter dated bonds that would not lock our clients money into those ultra-low rates for an extended period. We now believe it’s time to start buying some longer dated bonds, as they are attractive on both a relative and historic basis.

Today we can buy a ladder of high-quality bonds with a 2.5 year average duration with a yield of 6%. These bonds are a mix of T-bills and Investment grade corporate bonds. These bonds make sense for qualified accounts (IRA’s, Roth IRA, etc), and taxable accounts if clients are in a lower tax bracket.

For those in higher tax brackets, tax free municipal bonds are also quite attractive in taxable accounts. We have been buying investment grade municipal bonds with yields from 4%-5%.

As an example: For those who live in New Jersey and are in the highest tax bracket, those yields mentioned above equate to a taxable equivalent of:

 4% Tax Free = 7.66% corp bond or 6.35% in a treasury bond

5% Tax Free = 9.57% Corp bond or 7.94% in a treasury bond

Fidelity 10/20/2023

Remember, bonds are only a part of a diversified portfolio. Stocks historically have done a much better job of protecting you against inflation. They have also shown they can withstand much higher interest rates than we are experiencing today. History says they will also outperform in the long term.

Call us with any questions.

Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.