After the Federal Reserve raised interest rates by another 75 basis points on Wednesday, the yield on the 2-year Treasury note rose 15 basis points to 4.113%, its highest level since 2007. Meanwhile, the yield on the benchmark 10-year Treasury rose by roughly one basis point to a high of 3.64%, the highest level since February 2011.
Some investors believe that this significant inversion, with short-term rates higher than long-term rates, suggests that a recession may be on the horizon.
The Fed raised its policy interest rate by three-quarters of a percentage point, increasing it to a range of 3% to 3.25%. This is the third consecutive rate hike of 0.75%. Fed Chairman Jerome Powell said in a prepared statement that the U.S. central bank also “anticipates that ongoing increases in the target range will be appropriate.”
So, as yields go up, fixed-income investors may want to consider the American Century Multisector Income ETF (MUSI). MUSI seeks to deliver high levels of current income and attractive risk-adjusted returns over a full market cycle.
Per its product website, MUSI invests in a diverse portfolio consisting of investment-grade corporate, high yield (up to 65%), securitized, and emerging markets debt securities. Sector allocation decisions are managed tactically, driven by global macroeconomic outlook and assessment of relative valuation among sectors. Sector specialist teams select individual bonds based on their own fundamental, bottom-up analysis.
The fund is actively managed, giving investors the option to get exposure to more flexibility and risk management strategies. With the assistance of a professional team of portfolio managers, MUSI gives investors dynamic exposure to the fixed income market with respect to its selection of holdings.
The fund comes with a 30-day SEC yield of 4.8% as of July 29. While the fund invests in investment-grade corporate debt, MUSI will step deeper into riskier credit to extract more yield.
In terms of duration, the fund focuses on more short-term to intermediate-term debt. The weighted average life to maturity, as of July 31, is about 6 years.
With the ability to get in and out of positions when the market environment deems necessary, the fund has more flexibility in a current market environment where rate hikes are prevalent. Additionally, this gives MUSI additional risk management by allowing the fund’s managers to pivot and adjust the portfolio’s holdings whenever necessary.
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