Investors have shown renewed bond interest in 2024. They’re looking to capture yield at the current rates before the U.S. Federal Reserve starts loosening monetary policy. That said, it’s an opportune time for investors to get bond exposure with something such as this core option, especially amid record issuance.
“Post-pandemic, auction sizes have expanded across maturities, with the U.S. Treasury issuing $3.35 trillion in 2023 and an expected $5.16 trillion in 2024,” noted a Seeking Alpha article from Neuberger Berman. “However, the second half of 2023 generally saw weakened investor demand due to uncertainty over future policy rates and anticipated higher gross issuance.”
Despite the uncertainty, however, investors seemed to have changed their tune just ahead of 2024. As the stock market rallied, investors also gave bonds a second look just before the new year.
“Since December, however, there’s been strong demand for U.S. Treasuries, influenced by the Federal Reserve’s signaling of potential rate cuts,” the article confirmed. “And despite increased auction sizes, this year has been marked by robust interest in longer maturities, reflected by significant purchases across auctions for 10-year and 30-year Treasuries, as well as in inflation-linked securities.”
As mentioned, the timing couldn’t be more auspicious as record issuance has marked the beginning of 2024. Higher demand from prospective bond investors means there’s plenty of supply whether investors are looking at debt in the public sector, private sector, or both.
An Active Core Option
Given the diverse array of options investors have for getting bond exposure, exchange-traded funds (ETFs) can provide an all-encompassing option. All funds aren’t built the same, but one option worth considering is the ALPS/SMITH Core Plus Bond ETF (SMTH).
The actively managed SMTH seeks above average total return from a combination of current income and capital appreciation. That investment goal speaks to the duality of high yields in the current environment. And that paves the way for bond price appreciation when rate cuts occur.
Having an actively managed strategy inherent built into the fund means SMTH investors have access to active professional managers with the ability to adjust the fund’s holdings when a change is warranted. This is especially beneficial in times of volatility where Fed rate decisions can make for sudden market movements. Thus, SMTH investors have peace of mind knowing that they’ll have an ideal balance of yield and bond price appreciation irrespective of the current market conditions.
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