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Higher bond yields are making the fixed income corner of investors’ portfolios exciting – but there is a right way and a wrong way to go looking for income. Bonds captured investors’ attention in 2022 as the Federal Reserve embarked on its rate-hiking campaign to cool inflation. Bond yields and prices move inversely to each other so, as rates rose, prices tumbled – and did so at an inopportune time since stocks were suffering, too. Consider that the iShares Core Growth Allocation ETF (AOR), which is allocated 60% to stocks and 40% in bonds, dropped 17% in 2022. But for investors seeking reliable income from interest payments at a low price, it was a great time to snap up some bonds. These days, you don’t even have to chase junk bonds for attractive yields. Consider that six-month Treasury notes are offering yields of 4.88%, while three-month T-bills tout a rate of 4.69%. US1M US3M,US6M 1Y line T-bills are looking attractive as rates remain high. “Short-dated yields are up over 4% now, which is quite attractive,” said Hans Olsen, chief investment officer of Fiduciary Trust. “With inflation coming down, there’s a real possibility that people will earn a real yield on their cash balances, which is a remarkable state of affairs.” Here’s how to play those higher yields without getting burned. Looking to shorter duration Last year, investors seeking relative safety ran toward long-dated government bond funds. Those funds brought in $46.6 billion in net flows, the most among all fixed-income categories, according to data from Morningstar. Given the inverted yield curve – shorter-dated bonds have higher yields compared to their longer-dated counterparts – financial advisors are looking more closely at short-term bonds. Duration, a measure of interest rate sensitivity, is also a focal point when selecting bonds. Issues with longer maturities have higher duration. Thus, they have higher interest rate risk and greater price fluctuation. US2Y US10Y 1Y line The yield curve inversion has made the shorter-dated issues more attractive than their longer-dated counterparts. “People’s risk appetite has been diminished after last year, and you need a year like last year to remind people that the risk is out there,” said Thomas Balcom, a certified financial planner and founder of 1650 Wealth Management. He likes short-term Treasury bond funds and ETFs. “Rebalancing into these products, you can earn some return this year with virtually no risk,” Balcom said. “It…
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