For much of the last few decades, the world of bonds and other fixed income instruments has largely been a story of slow and steady asset appreciation. The 10-year treasury rate peaked in the early 1980s at around 15% before charting a path to just over 0.5% in 2020. Interest rates and bond prices have an inverse relationship—meaning this 40-year period was a long bull market for fixed income assets. After rates hit these lows in 2020, inflation raged and forced the Federal Reserve to raise interest rates to levels not seen since before the Great Financial Crisis. This action has created compelling opportunities in corporate bonds and fixed income.

Recently, we have been aggressively buying longer-dated and high-quality credits, locking in these higher rates for greater periods of time. Today, our Corporate Bond holdings are at an average yield to maturity of over 5.2%. For comparison, at year-end 2019, our average yield was 3.1%. Importantly, the quality of our assets has never been stronger than it is today.

Additionally, given the drastic interest rate movements over the last few years, we have seen opportunities to broaden our fixed income suite of offerings to provide greater tax-advantaged value to our clients. In 2020, we initiated a partnership that offered clients access to a private real estate investment vehicle. In 2022, we opened our Preferred Equity strategy. Most recently, in 2023, we began investing in Municipal Bonds. Each of these strategies is opportunistic in design and meant to complement our traditional Corporate Bond strategy while offering greater tax efficiency.

Right now, we see opportunity.

At the start of the year, expectations were for the Federal Reserve to cut rates six times in 2024. We are now nearly halfway through the year and have yet to see a single cut. Historically, the Fed has left its target rate at its peak for an average of eight months before the first cut. We are now 11 months into the current cycle, inflation is finally cooling, and economic data is beginning to soften. While this window is still open today, it will not remain so indefinitely. Now is an ideal time to seed portfolios with higher-yielding assets that will pay you for years to come.

Best Regards,
The Sandhill Research Team

Disclosure: This has been prepared for informational purposes only and does not constitute, either explicitly or implicitly, any provision of services or products by Sandhill Investment Management. Sandhill Investment Management (“Sandhill”) is a registered investment advisor with the Securities and Exchange Commission that is not affiliated with any parent company. Third-party information in this report has been obtained from sources believed to be accurate; however, Sandhill makes no guarantee as to the accuracy or completeness of the information. All statements made regarding companies, securities, or other financial information contained in the content are strictly the beliefs and opinions of Sandhill and are not endorsements of any company or security or recommendations to buy or sell any security. The average yield to maturity is representative of the current makeup of the composite and is not meant to represent how newly opened accounts will be invested. These investment strategies have the potential for profit or loss. For a full list of strategy recommendations for the preceding year, please email your request to compliance@sandhill-im.com.