Economic growth has been moderating from its strong pace earlier this year due to:
- Slowdown in the housing market, which has resulted in increasing unemployment and reduction of homeline credit,
- Rising energy prices,
- Seventeen interest rate hikes.
With the Fed near the end of its tightening cylce and the economy increasingly looking vulnerable, it may present an opportunity to add bonds to your portfolio. A slowing economy leads to lower corporate profits and seeking refuge in treasuries, which are yielding close to 5%.
Investors can seek bond exposure through exchange traded funds, such as iShares Lehman 7-10 Year Treasury Bond Fund (IEF) and iShares Lehman U.S. Treasury Inflation Protected Securities Fund (TIP). The Fed persisted that, "some inflationary pressures remain," thus the ETF, TIP, provides protection against inflation and IEF provides bond exposure to the 7-10 year Treasury bonds.