Displaying items by tag: fixed income

Amid inflationary pressures and monetary uncertainty, investors have increasingly turned to short-duration U.S. Treasury bonds to protect income and reduce interest rate risk. With maturities under five years, these bonds are less sensitive to rate hikes than longer-term securities, making them a defensive yet reliable option in volatile markets. 

The narrow yield spread between the 10-year and 2-year Treasuries highlights how long-term bonds are more exposed to macroeconomic swings, while short-duration bonds remain anchored to Fed policy. 

Active management has further boosted performance, with funds like the Calvert Short Duration Income Fund (CDSRX) and iShares Short Duration Bond Active ETF (NEAR) outperforming peers by tactically adjusting credit quality and duration. Recent results show that actively managed short-duration funds have not only delivered weekly gains but also produced strong risk-adjusted returns, particularly in high-yield segments. 

Finsum: As the Fed holds a cautious stance on rate cuts, short-duration strategies stand out as both an income generator and a stabilizer within diversified portfolios.

Corebridge Financial has launched Power Select AICO℠, a new index annuity developed in partnership with Market Synergy Group, featuring a unique Additional Interest Credit Overlay (AICO) that can boost earnings by up to 200%. The product offers exposure to major indices like the S&P 500® and Nasdaq-100®, along with fixed interest options, while providing 100% downside protection against market losses. 

Unlike traditional index annuities, the overlay allows for enhanced accumulation during weak markets, though it comes with a 0.80% annual fee and a cap on the maximum overlay benefit. 

Executives say the design helps investors diversify and accumulate assets regardless of market conditions, while still offering protection during downturns. The contract guarantees are backed by American General Life Insurance Company, a Corebridge subsidiary, though withdrawals may carry tax implications and early withdrawal penalties. 

Finsum: With its combination of growth potential, protection, and innovative crediting structure, index annuities are perfect for retirement savers seeking balance between safety and upside.

Annuities, once sidelined as overly complex or narrowly useful, are now experiencing a surge in demand as investors prioritize stability, protection, and predictable income in a volatile economic landscape. This shift is driven by pre-retirees and retirees rethinking traditional equity-focused strategies and seeking solutions that mitigate risks like sequence-of-returns. 

Fixed and fixed indexed annuities, in particular, offer competitive yields, downside protection, and guaranteed income, features especially appealing to mass-affluent households with limited pension coverage. 

The Great Wealth Transfer is also fueling interest, as boomers explore annuities not just for income but for legacy planning as well. Meanwhile, advances in digital tools and platforms have made annuities more transparent, accessible, and easier to incorporate into holistic financial plans. 

Finsum: Even as interest rates fluctuate, annuities are expected to remain a core solution for those seeking long-term financial confidence over short-term market gains.

U.S. Treasury yields plummeted, particularly on short-term notes, after July’s jobs report came in significantly weaker than expected, reigniting investor expectations for an imminent Federal Reserve rate cut. 

The two-year yield dropped 25 basis points to 3.71%, its steepest one-day fall in a year, as traders priced in an 80% chance of a rate cut at the Fed’s September meeting. The labor data showed just 73,000 jobs added in July, well below forecasts, and revisions to prior months brought the three-month hiring average to a pandemic-era low of 35,000. 

The market’s reaction signaled a dramatic pivot in sentiment, further fueled by political pressure from President Trump and dovish dissent from two Fed governors. Treasury futures volumes surged as traders abandoned flattening yield curve bets, and BlackRock analysts now anticipate a 50-basis-point rate cut in September, with more to follow by year-end. 

Finsum: The Fed can afford aggressive easing without stoking inflation, setting the stage for a bold monetary policy shift.

So far in 2025, investment-grade bonds have generally delivered modest gains, but municipal bonds have bucked the trend with disappointing performance. The iShares Core U.S. Aggregate Bond ETF (AGG) returned 2.85% through mid-June, while the iShares National Muni Bond ETF (MUB) declined by 1.29%, despite their similar credit quality and low fees. 

One key difference lies in liquidity: municipal bonds are often held long-term, making them harder to trade, with wide bid-ask spreads that erode value during redemptions. Outflows from MUB and uncertainty around tax policy, especially the fate of the 2017 tax cuts, may also be pressuring muni prices. 

For investors in high tax brackets, limited allocations to diversified, low-cost muni funds may still be warranted, but caution is advised, and exposure should generally stay under 20% of fixed income holdings.

Finsum: Structural issues, like the possibility of reduced federal funding for states and large unfunded liabilities, further cloud the muni bond outlook.