Now is the time to rebalance your portfolio and snap up these bonds, UBS says
The S & P 500 has just notched a fresh record, and while investors may be reluctant to bulk up on fixed income, now is actually a good time to buy some high-quality government bonds, UBS said. The broad-market benchmark hit a new high on Thursday as investors looked past a post-earnings sell-off in Meta Platforms and Microsoft . The S & P 500 is heading for a 10% surge in April alone, largely driven by technology. “After years of strong equity performance relative to bonds, many investors can rebalance toward fixed income, bringing allocations back in line with long-term plans,” said Ulrike Hoffmann-Burchardi, chief investment officer Americas and global head of equities, UBS Financial Services. “This is critical especially when stocks are at all-time highs and equity valuations have increased,” she added in a Tuesday report. US2Y 1M mountain U.S. 2-year Treasury yield Hoffmann-Burchardi’s team pointed to a recent run-up in benchmark government bond yields, which presents investors with a “compelling entry point.” Bond prices and yields move inversely to one another. Treasury yields inched lower on Thursday after first-quarter gross domestic product growth missed estimates. But a day earlier rates on U.S. two-year , five-year and 10-year Treasury notes touched their highest levels in about a month. “We favor quality government bonds with short to medium maturities, as they not only offer appealing yields, but they also can potentially help stabilize portfolios during periods of uncertainty,” Hoffmann-Burchardi said. Income and relative safety Bonds with shorter maturities have less price sensitivity to swings in interest rates – meaning they have shorter duration. They also offer attractive interest income: The 3-month Treasury bill has a yield of 3.68%, while its 1-year counterpart yields 3.72%. Investors hoping to bolster their fixed income sleeve can purchase individual bonds. They can also use those issues to create a ladder of staggered maturities to help smooth out interest rate fluctuations. Ladders can be customized for a given time horizon: For instance, a ladder of T-bills gives an investor the opportunity to earn interest for a short-term goal with low risk. Investors who want exposure to a basket of government bonds or who may not have the funds necessary to build a custom ladder can get exposure to these issues through ETFs. Just be aware that bond funds themselves don’t have a maturity date, so their price can fluctuate over time. Keep an eye on the quality of the bonds held within your ETF and be mindful of the fund’s cost. High fees tend to take a bite out of your return. Government bond ETFs include the Vanguard Intermediate-Term Treasury ETF (VGIT) , which has an expense ratio of 0.03% and a 30-day SEC yield of 4.01%; and the Schwab Short-Term U.S. Treasury ETF (SCHO) , which also has an expense ratio of 0.03% and a 30-day SEC yield of 3.79%. “Some allocation to government bonds makes sense for adverse economic scenarios,” Hoffmann-Burchardi noted.
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