• Home
  • Domestic bonds
  • Kiplinger Staff: Investing: Finding Value in a Volatile Market | Economic news

Kiplinger Staff: Investing: Finding Value in a Volatile Market | Economic news

By on July 31, 2022 0

The Pattern: In May, the Federal Reserve raised short-term interest rates by half a percentage point, the most in a single adjustment since 2000, then raised them another three-quarters of a point on Tuesday.

In May, stock prices surprisingly rallied as long-term interest rates fell, also generating gains for bonds and bond funds.

But after a night of contemplation, the mob of day traders, rumblings of debt and inflation and Fed cynics wiped out gains and more, in bonds and equities.

That heightened fears of a prolonged, broad decline as oil prices rebound, high mortgage rates strangle the housing boom, and jobs, corporate profits and consumer spending gradually weaken.

In such a world, everyone with diversified savings and investments is in the zugzwang, the chess player’s trap where every possible move makes you worse off.

People also read…

The preventative to this is to find a safe haven. I see one year certificates of deposit paying 2%. It hadn’t been offered for a while. Take it if you’ve had your fill of turbulence.

But I don’t equate volatility with desperation. Several higher income investments, despite being in the red so far in 2022, appear oversold. Accordingly, I expect better results in the second half of the year among the main yield-oriented sectors: taxable and tax-exempt municipalities, preferred stocks, utilities, real estate investment trusts and A-rated corporate bonds. and BBB.

The few true first-half winners are also still safe. Energy investments will continue to thrive, floating rate funds remain expedient, and you can now accumulate two- to five-year Treasury bills with respectable coupons. If you are vigilant, you will be likely to buy investment grade bonds, funds and bond-like assets on declines.

After interest rates have risen the way they have, and with slowing economic growth increasingly likely, I can’t see another two quarters of 10% capital losses on short-term debt. and in the medium term. How much sense does selling more bonds make, especially since the yield curve is flattening and long-term Treasury rates stop climbing as much? A bunch of fixed-rate preferred stocks with tax-efficient dividends are nearly 20% below their $25 face value, and similarly rated issues (about BBB-minus) from financial luminaries like Allstate Insurance , Bank of America, Capital One, Morgan Stanley and US Bancorp are priced at a current yield of 6% or more.

The rare year-to-date decline in municipal bond prices followed a long period of outperformance. Now, munis dated 10 years and older are generally priced to yield more than equivalent-maturity Treasuries — a buy signal for tax exemptions, and that’s before you calculate your taxable equivalent yield, which can exceed 7%.

The war in Ukraine is a boon for national energy investments. A series of 10- to 20-year issues from oil and gas, pipeline and related industries, rated investment grade or just below, are priced at a yield of 5.5% or 6% up to at maturity, with the possibility of increasing prices. .

You get considerably more value in a number of areas today. That’s why I’m confident that this year’s balance sheet will be less daunting and perhaps more rewarding than the beginning, at least for experienced investors.