Rising Treasury Bond Yields – February 24, 2021

The Federal Reserve has pledged to hold its key lending rate, the fed funds rate, at near zero for an extended period.

• Short-term interest rates remain near zero.

Longer-term Treasury yields, however, have risen.

What’s behind the recent rise in yields? Several factors.

• Growing expectations that the U.S. economy will experience stronger growth this year, which makes safer Treasury bonds less attractive (Treasury yields and bond prices move in the opposite direction).
• Investor fears that inflation will rise, which reduces the appeal of fixed income investments.
• The Fed’s insistence that it will focus on keeping monetary policy easy and short-term interest rates low is lifting inflation fears.
• The likelihood of another massive government relief package, which will aid economic growth, is also raising worries about inflation.

Investor’s corner

Investors look at events today but are more attuned to what may happen down the road.

The rise in Treasury yields and improving sentiment on economic growth doesn’t preclude fixed income in a diversified investment portfolio.

There are various options investors can use to mitigate rate concerns.

Investors that adhere to a well-diversified financial plan are in the best position to manage any volatility and reach their financial goals.

Created 2021-02-24 18:34:27