by Bryan Perry

March 26, 2024

Aside from last week’s NVIDIA GTC conference – a huge success for the company’s stock and for the tech sector in general – the release of the Fed’s dot plot plan might have actually delivered even more thunder to the bullish narrative for the stock market. Prior to last week’s FOMC meeting, Bank of America reported that U.S. equity funds suffered redemptions of $22 billion in the week through last Wednesday – the biggest outflow since December 2022 – according to EPFR Global data.


Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

This outflow ran counter to the prior week, which had attracted record inflows, but convinced that the Fed would reduce the number of 2024 rate cuts from three to two, one, or none, investors placed $22 billion in bearish bets. There was trepidation before this Fed meeting, based on two hotter-than-expected inflation reports. Treasury yields reached their highest level year-to-date. Bond and stock investors had bought into the higher-for-longer narrative hand over fist, heading into the meeting, and were caught flat-footed.

The Fed’s new “dot plot” is reproduced below. Just for clarity, Bloomberg defines the Fed’s dot plot as “a chart showing estimates of what the federal funds rate should be, going forward. Members of the rate-setting Federal Open Market Committee each assign a dot for what they view as the midpoint of the rate’s appropriate range at the end of each of the next three years and over the longer run. Investors focus on the median dot. As many as 19 monetary policymakers — the seven governors on the Fed Board in Washington and the presidents of the 12 regional banks — can contribute a dot.”


Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

From the Dot Plot chart above, the Fed’s median long-term forecast for the Fed Funds rate is currently 2.50%. If you are a bond investor, this is a compellingly bullish chart. If short-term interest rates are to be cut in half from current levels over the next 3-5 years, bond prices will trade markedly higher over this time frame. The latest CME Fed-Watch Tool has a 67% probability that a quarter-point cut is coming at the June 12 FOMC meeting. That would take the Fed Funds rate down to 5.0%-5.25%, from 5.25%-5.5%.

If the Fed is right about this long-term trend, and the CME betting is right, then there isn’t much time to lock in today’s longer-term yields. At this juncture, investors are loving their 5%+ yields being paid out from money markets, T-Bills and CDs. The Schwab Value Advantage Money Fund – Investor Shares (SWVXX) pays a 7-day yield of 5.17%. That’s about as good as it gets for a premier investment bank.

Income investors are now faced with how to lock in yields without taking undo risk. The key is to decide how far to go out on the yield curve, so that if inflation reignites, this would not be too detrimental to bond principle. It can be argued that with the 10-year Treasury paying 4.20%, then going out 20 years to get 4.47% or 30 years for 4.38%, isn’t worth the extra 18 to 27 basis points. At the same time, if short-term rates are going to 2.5% over the next 3-5 years, it stands to reason to look at 7-10-year maturities.

The Treasury’s $34.6 trillion in federal debt is fast getting some long overdue concern by policy makers, but investors shouldn’t expect any progress on the debt dilemma during a Presidential election year. In a recent note by B of A, they said, “The U.S. is adding $1 trillion worth of debt to its total balance every 100 days,” so it is perfectly understandable if piling into Treasuries to lock-in yields generates an elevated level of nervousness in some investors, wondering if and when a future Treasury auction may go badly.

Here are the current Treasury rates, along the yield curve, as of last Friday:

US Treasury Yield

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

One alternative to long-dated Treasuries that pay a higher yield is investment grade corporate bonds. However, building one’s own investment grade portfolio is not easy, and in fact, quite a challenge in this market, where most of the attractive issues are gobbled up by institutional buyers. Fortunately, there are ETFs that do the job of providing excellent yields, diversification, and monthly payments.

One such product is the Invesco Bullet-Shares 2033 Corporate Bond ETF (BSCX) that sports a SEC 30-Day Yield of 5.2%, a Distribution Rate of 5.05% and a Yield to Maturity of 5.33%. The effective duration is around seven years, which takes into account changes in interest rates, callable features, coupon payments and individual bond maturity dates. The 232 portfolio holdings in this fund are typically held to maturity, where if any bonds are called early, the proceeds are invested in like-kind securities.

Invesco Table

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

This is just one example of how ETF sponsors make it easy to ladder-out bond portfolios in investment grade, high-yield, and municipal securities, depending on risk tolerance and one’s tax bracket. Buying an unleveraged bond portfolio ETF that charges only 0.10% management fee is, in my view, a timely place for those seeking to start locking in yields before the Fed gets busy cutting rates as early as June.

The days of 5%+ short-term money look like they are coming to an end, relatively soon. Securing 5%+ yields for the next 7-10 years, with bond prices set to appreciate nicely in a declining interest rate environment, is a Goldilocks moment for fixed income assets.

Based on his post-FOMC press conference, Fed Chair Jerome Powell seems to believe it’s a done deal.

Navellier & Associates owns Nvidia Corp (NVDA), in managed accounts.  Bryan Perry owns Nvidia Corp (NVDA), in a personal account.

All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
If the Fed Plans to Cut Rates, Then Why is the Dollar Firm?

Sector Spotlight by Jason Bodner
Is This Bull Market Boring You to Death?

View Full Archive
Read Past Issues Here

About The Author

Bryan Perry

Bryan Perry

Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.

Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry

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