Why it's a 'great time' to enter the bond market

Interested in navigating the bond market? F/m Investments senior portfolio manager and US Benchmark Series Co-Founder Pete Baden joins Wealth to share his insights on bond investing strategies.

Amid uncertainty surrounding the Federal Reserve's rate-cutting timeline, Baden notes there are "echoes of higher for longer." However, with rate cuts still on the horizon, he suggests this is "a great time" to enter the bond market, calling it "a second opportunity" to secure yields and lock them into portfolios to "generate income that will support you going for years forward."

When it comes to different bond types, Baden explains that US Treasury Bonds are "considered safe" and provide refuge during wars and recessions. As for corporate bonds, these investment-grade securities track companies' ability to make interest payments. They typically perform well during economic strength, but Baden cautions, "You don't necessarily want to be in high-yield bonds if you think the economy's not going to do well because those companies are usually the first ones to really show the pressure of a declining economy."

To watch more expert insights and analysis on the latest market action, check out more Wealth here.

This post was written by Angel Smith

Video Transcript

To discuss how you could get into the bond trade.

We have PB in his investment, senior portfolio manager and co founder of the US Benchmark Series as part of this week's ETF report brought to you by Best Go QQQ and be we've seen these significant rise in yields over the past few weeks.

How should investors be digesting these moves to the upside and is now the time to buy into the bond market?

So we had a fed who came in and they basically said, hey, we've got this under control.

Inflation's, you know, well, under control, we've got jobs that look like they're getting a little bit worse.

We're gonna change our focus from inflation to jobs and that was all great.

And we all believe the message and they cut interest rates by 50 basis points on the overnight market rate and we went, ok, this is great.

Everything is gonna be fantastic.

The feds on the job and we're looking at a slower economy and then all of a sudden we got this jobs report from September and it was strong, really strong and we had a couple of other jobs reports.

We had retail sales come through and all of a sudden we went, wait a minute, maybe we've got something that isn't necessarily exactly what the fed was planning on.

And so we have this move where people went, the fed is not going to be able to cut as aggressively as they think, or we think they're going to do.

And so all of a sudden everybody started pulling off their bets that rates were going to go down, that we were going to start seeing lower interest rates very soon.

And we started extending when that might happen.

A K A echoes of higher for longer.

And so we're seeing that happening, we still think there's gonna be some rate cuts.

And so this is still a great time to get into the bonds.

We actually look at this as a second opportunity to get some of these great yields that are out there and be able to lock them in and have them in your portfolios and really generate that income that will support you going for years forward.

Now, there are a variety of fixed income strategies from investment grade bonds to high yield bonds.

Can you break down the main categories there and the pros and cons of each for investors?

Absolutely.

Us treasury bonds are considered safe.

They are great investments for times of recession, great at times of war, things like that.

Then you kind of go from there into corporate bonds and we kind of divide corporate bonds into investment grade, which are ratings that are put out by the major rating organizations.

S and P Moody's Fitch.

And those usually go from AAA all the way down to triple B, triple B minus B A three and those are considered investment grade.

In other words, those are companies that are highly likely to be able to pay off their debts when they come due, make all their interest payments on time and not really have much of a chance of a default.

The closer you are to AAA, the better it is you go below triple B minus, then all of a sudden you're getting into what's called not investment grade or high yield.

And that goes into double B plus and then double B and all the way down to triple C and then ultimately into default.

And all of those are, are great bonds too, but they're not really a core bond portfolio.

They're just great positions to have.

If the economy is doing well, interest rates are coming down and that's a positive time for high yield bonds.

You don't necessarily want to be in high yield bonds if you think the economy is not going to do well, because those companies are usually the first ones to really show the pressure of a declining economy.