that have some level of call or prepayment protection. Sacrificing structure for extra yield is not a strategy that typically ends well. The bonds that provide less call or prepayment protection are typically going to yield more than those that provide adequate call or prepayment protection. As portfolio managers look to extend duration to protect future yields, they must do so in a prudent manner. 5. Waiting for where rates used to be can cost you. Trying to buy bonds at or near the peak in the rate cycle is a challenging and usually impossible task. However, a better approach is to participate in the market as liquidity allows by deploying excess liquidity through a well-thought-out investment strategy. The investor AS WE HEAD TOWARDS AN UPCOMING EASING CYCLE FROM THE FED, WE SHOULD BE EVER MINDFUL THAT WE DO NOT HAVE THE CRYSTAL BALL WHEN IT COMES TO PREDICTING INTEREST RATES. should think about “time in the market” and not “timing the market.” It’s easy to think you missed the peak in rates and not take any action. Market interest rates, like the treasury markets, tend to lead the Fed Funds Rate both up and down. As we head towards an upcoming easing cycle from the Fed, we should be ever mindful that we do not have the crystal ball when it comes to predicting interest rates. Instead, we should stick to our written investment strategy of building a portfolio of bonds with stable and predictable cash flows to complement our entire balance sheet. Utilize the words of wisdom in this article to ensure we can build a higher-performing portfolio at the start of this next rate cycle. INDEPENDENT REPORT | 27
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