Investment Corner with Jason & Sean: Short-Term Yields Are Attractive… But are They Deceiving? 

My colleague and partner, David Brinkman, recorded a video discussing the amount of money going into money market funds. In the short video, found here, David showed the relationship between price and yield (they work like a seesaw) and the consensus view among economists and investors that the U.S. Federal Reserve will likely cut interest rates in 2024.

Building on David’s video, I wanted to review how 2023 ended for core fixed income and money market funds and why we think it makes sense to sacrifice a little yield upfront to lock in yields for the next several years.

The chart above shows the current annualized yield of the 3-month U.S. treasury bill versus the current yield of the intermediate-term Barclays U.S. Aggregate Bond index.[1] At first glance, the yield of the three-month treasury note looks more attractive than the yield of the U.S. treasury and agency-heavy Bloomberg U.S. Aggregate. However, we don’t think the current yield tells the full story. The maturity of the three-month treasury is as you might expect, three months; the average maturity of the Bloomberg U.S. Aggregate Bond index is 8.5 years. As an investment team when we zoom out, we think the investment opportunity is more attractive in intermediate-term fixed income. The ability to lock in ~5% yield for 8 plus years is attractive; in addition to locking in the yield, there is the ability for intermediate-term bonds to appreciate if/when interest rates decline (remember bonds are a seesaw; as yields go down, prices go up). As illustrated in the fourth quarter return, the 3-month treasury returned ~1.4% whereas the Aggregate index returned ~6.8%; this shows the power of the relationship between price and yield. With such a short maturity, the three-month treasury bill return is most limited to its yield accrual.

The investment team at Schneider Downs Wealth Management thinks it's time for investors who have been hiding out in treasuries and/or money market funds to review their portfolios and consider allocating more capital toward intermediate-term fixed income. The combination of attractive yields and the ability to lock up those yields for a longer time makes intermediate-term investment-grade fixed income worth another look!

[1] The Barclays US Aggregate Bond index is made up of government and treasury securities, corporate bonds, mortgage-backed securities, asset-backed securities, and municipals. All investment grade. 

About Schneider Wealth Management  

Schneider Downs Wealth Management has been providing investment and retirement services since 2000. Although our service platforms continue to evolve, commitment to our clients remains our first priority. Our service is tailored to your individualized goals but built on the fundamental principles of our practice: fiduciary guidance, fee transparency and goal-based decision making. To learn more, visit our dedicated Wealth Management page. 

Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice. Registration with the SEC does not imply any level of skill or training.