Fixed Income In Focus

Over the past year, the Federal Reserve has aggressively raised interest rates, reversing a four decade bull market in bonds. The Fed Funds rate, which is the rate at which banks lend to other banks, rose from zero percent at the beginning of the year to 4.50 - 4.75% currently. Because bond prices, especially long-term bonds, move inversely to prevailing interest rates, this rapid increase produced the worst returns for long-term treasuries in over 50 years.  

The rapid rise in rates and concomitant drop in bond prices, has created large unrealized losses for many banks holding bonds in their investment portfolios. With many depositors understandably nervous, several banks - most notably Silicon Valley Bank, Signature Bank and First Republic - experienced meaningful deposit outflows, which could have forced these banks to sell their underwater bonds, triggering realized losses. 

From our point of view, the rapid fluctuations in both equity and fixed income markets, make our style of active management essential. During the course of the past forty years, we’ve weathered numerous bull and bear markets, with the goal of delivering the best risk-adjusted returns for our clients. 

During periods of ultra-low interest rates, we did not view fixed income as a particularly attractive area so we looked for high-yielding alternatives like equities or partnerships. More recently, we’ve adjusted our exposure as rates have risen, especially for those clients contemplating retirement; corporate bonds with medium-term duration - 1 to 7 years - can provide a solid 4-6% yield, a far cry from the negative real yields of just a year ago.

While we’re appropriately focused on optimizing returns, we do so while managing volatility and risk. Roanoke’s agility and responsiveness to each clients specific needs, makes us a perfect partner to help you chart your financial journey and achieve your goals.