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Bond Market Commentary

  • 05.14.18
  • Markets & Investing
  • Commentary

Short-Term Opportunities

By Drew O’Neil

Over the past year, the entire yield curve has gradually shifted higher, although the shift has not been parallel. Short-term rates have increased by larger margins than the intermediate and long parts of the curve. For example, Treasury yields from 3-months out to a year have risen by about 1% over the past twelve months, compared to a just 0.61% for the 10-year and only 0.13% for the 30-year. This jump in short-term rates has created opportunity for investors looking to earn more than they could by sitting in cash while still keeping duration low.

Many investors keep a portion of their portfolio in cash for an infinite number of reasons, but for those investors that are looking to earn more than they can in a bank deposit program and are willing to invest in short-term, high-quality securities, the shift up in yields has created a great opportunity across a variety of asset classes. For the most credit risk-averse investors, Treasuries and brokered CDs provide significant yield pick-up over what can be earned on cash, in maturities as short as 3 months. A popular short-term strategy is to ladder either CDs or Treasuries with monthly maturities out to a year, so that money is maturing monthly providing liquidity, if needed. For investors looking to pick up additional yield and willing to invest in high-quality corporate or municipal bonds, investing in slightly longer maturities out to three years can provide yields in the 3% range. With current bank deposit rates at 0.40%*, any of these strategies provide significant yield pick-up over remaining in cash.

The chart below highlights potential short-term opportunities across a variety of asset classes. Although there is a great opportunity on the short end of the yield curve for investors looking for an alternative to cash, for investors developing a longer-term strategy, diversifying among maturities (i.e. a laddered strategy) will help to mitigate reinvestment risk.


To learn more about the risks and rewards of investing in fixed income, please access the Securities Industry and Financial Markets Association’s “Learn More” section of investinginbonds.com, FINRA’s “Smart Bond Investing” section of finra.org, and the Municipal Securities Rulemaking Board’s (MSRB) Electronic Municipal Market Access System (EMMA) “Education Center” section of emma.msrb.org.

The author of this material is a Trader in the Fixed Income Department of Raymond James & Associates (RJA), and is not an Analyst. Any opinions expressed may differ from opinions expressed by other departments of RJA, including our Equity Research Department, and are subject to change without notice. The data and information contained herein was obtained from sources considered to be reliable, but RJA does not guarantee its accuracy and/or completeness. Neither the information nor any opinions expressed constitute a solicitation for the purchase or sale of any security referred to herein. This material may include analysis of sectors, securities and/or derivatives that RJA may have positions, long or short, held proprietarily. RJA or its affiliates may execute transactions which may not be consistent with the report’s conclusions. RJA may also have performed investment banking services for the issuers of such securities. Investors should discuss the risks inherent in bonds with their Raymond James Financial Advisor. Risks include, but are not limited to, changes in interest rates, liquidity, credit quality, volatility, and duration. Past performance is no assurance of future results.