Viewpoints

Seeking Harmony in Short‑Term Markets

Recent volatility in short-term markets will likely, over time, be accompanied by more attractive income opportunities for cash allocations.

In music, two voices raised in harmony can be sublime. In investing, two factors working in harmony can drive results and structural total returns.

However, many investors observing bond markets in the first quarter of 2022 found themselves questioning the traditional “duet” of capital appreciation plus carry/income to produce total returns. Negative total returns in short-term bonds – along with uncertainty producing volatility in typically stable short-term rates indices (see Figure 1) – have been a dissonant experience.

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The Author

Jerome M. Schneider

Head of Short-Term Portfolio Management

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All investments contain risk and may lose value. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and low interest rate environments increase this risk. Reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Sovereign securities are generally backed by the issuing government. Obligations of U.S. government agencies and authorities are supported by varying degrees, but are generally not backed by the full faith of the U.S. government. Portfolios that invest in such securities are not guaranteed and will fluctuate in value. Certain U.S. government securities are backed by the full faith of the government. Obligations of U.S. government agencies and authorities are supported by varying degrees but are generally not backed by the full faith of the U.S. government. Portfolios that invest in such securities are not guaranteed and will fluctuate in value.

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