As the Federal Reserve prepares to cut interest rates, Americans will need to adjust their bond and income portfolios to capitalize on current yields and protect against future market shifts. This means advisors and wealth managers need to reassess their fixed-income strategies.
Recent economic data on employment and inflation has reinforced expectations of imminent rate cuts. The benchmark 10-Year Treasury Note has already reacted, with its yield dropping to 3.7% from a 2024 high of 4.7% in April. In response, advisors are taking varied approaches to portfolio management, according to InvestmentNews.
Eric Amzalag of Peak Financial Planning has been progressively adding bond exposure over the past year and plans to increase allocation to long-duration U.S. government bonds. However, he’s waiting for 10-Year Treasury yields to bounce back to 3.9-4% before fully implementing this strategy.
Meanwhile, Daniel Lash of VLP Financial Advisors has gradually shifted from shorter to more intermediate-term duration over the past two years. He’s cautious about moving to long-term duration, citing inadequate risk-reward trade-offs at present.
Also Read: ‘What Changed?’ — Federal Reserve May Take A Bigger 50 Basis Points Rate Cut Bite Next Week, Market Odds Imply
Mabrouk Chetouane from Natixis Investment Managers emphasizes the protective role of bonds against potential equity market downturns. And Ed Al-Hussainy of Columbia Threadneedle Investments notes that current yield levels offer income opportunities unseen in a decade, highlighting potential in agency MBS and asset-backed securities.
Of course, what the Fed will ultimately do remains to be seen. Will Sterling of TritonPoint Wealth believes market participants are too aggressive in their rate cut expectations, anticipating 250 basis points of cuts over the next 12 months.
Finally, Brandon Ross of Quotient Wealth Partners is reducing credit risk by trimming high-yield exposure and adding quality investments. He’s also incorporating active managers for fundamental analysis to identify undervalued, higher-quality bonds.
As the Fed approaches its first rate cut, advisors are balancing duration strategies to benefit from potential rate decreases while maintaining flexibility to respond to market volatility. This calculated approach aims to optimize client portfolios in an evolving economic landscape, blending protection with opportunistic positioning.
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