In 2017 , Granite Group wrote several pieces on the effect of higher interest rates on bonds. Investors have just witnessed the third interest rate hike in 2018. Granite Group continues to encourage investors who hold bond mutual funds or bond ETF’s to be cautious. We do not expect the same percentage back up in rates going forward, but do believe rates will go slightly higher over the next 12 months.
What does this mean for the investor?
Granite Group proactively shortened durations and modified allocations last year and this year to protect client’s fixed income allocations. As higher yields become more compelling, we still believe there is slightly more to come. It is important for investors not to stray from their fixed income allocations, but be diligent of how one invests within allocation. To lessen the impact, for those who desire income, it will be appropriate to have shorter durations. For those who are conservative but do not need income, there are several other low volatility options as interest rates go up.
As rates increase into 2019, we encourage investors desiring fixed income (bond) exposure to dip their toe in the water when the 10 year treasury yield goes higher next year.
Please feel free call Granite Group with any questions. (203) 210-7814
