Treasury yields remain stubbornly high, but income investors don’t need to be concerned yet. Yields rose on Friday, after initially dropping on a weaker-than-expected jobs report for September. The benchmark 10-year remains around 5.29% after earlier this week hitting its highest levels since 2002. Bond yields move inversely to prices. Investors are focused on the path of the Federal Reserve ‘s monetary policy. The central bank hiked rates in September and the market is placing 67% odds on another increase in December, according to the CME FedWatch tool . Right now, investors are getting income that can help protect against further price declines, the UBS said in a note Thursday. “Current elevated outright yields offer a carry cushion against potential further volatility that was not available in 2022,” said Ulrike Hoffmann-Burchardi, chief investment officer for the Americas and global head of equities at UBS Financial Services. The firm’s analysis shows that 10-year Treasury yields need to rise by about 65 basis points from current levels for capital losses to offset the income earned. The two-year and five-year yield would need to move higher by 225 and 110 basis points, respectively, Hoffmann-Burchardi noted. Income opportunities He continues to see opportunities across regions and market segments, and suggests income-oriented investors focus on short-maturity bonds to reduce duration risk. Those willing to deal with volatility can consider select tactical opportunities in medium- to long-duration bonds, said. However, fiscal concerns and artificial intelligence-rated issuance lead him to remain cautious on the longest maturities. Collin Martin, head of fixed income research and strategy at the Schwab Center for Financial Research. also sees a good opportunity to grab income right now. “We’re seeing yields at call it two-decade highs, and people are still nervous instead of focusing on the positives here,” he said. “These are attractive yields. Now that doesn’t mean that we can’t see them rise a little bit more, or could mean modest price declines if you hold bonds. But from an income standpoint, these are relatively attractive opportunities.” Martin believes short and intermediate maturities make the most sense. He likes investment-grade corporate bonds and high yield, as well. “The characteristics of the [high-yield] index have changed over time, and it’s a relatively high-quality index these days,” Martin said.
Here’s how high the 10-year Treasury yield needs to rise before income investors should worry, according to UBS
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