Advisors piling into Treasuries leaving muni bonds behind
Short term treasury yields have risen to levels too high for wealth managers to ignore. Maybe that’s why they are ignoring municipal bonds instead.
Treasury yields from one month through 2 years up the curve have eclipsed 5% at last check thanks to the past year’s steady diet of Federal Reserve rate hikes. A one year Treasury Bill, for example, is now yielding 5.4%, up over a percentage point from a year ago and five full percentage points from two years ago.
With that kind of return so available, liquid and risk free, it’s not hard to understand why financial advisors are funneling excess client money into good old government bonds. The wealth management mantra used to be ‘TINA’, as in ‘there is no alternative’ to stocks. Now it’s hard for advisors to take their eyes off Treasuries – at least for the so-called safe part of their client portfolios – and seemingly at the expense of municipal bonds.
“I’m not investing in individual muni bonds. With Treasury Bills rates so attractive, and interest being state tax free, I’m riding this wave as long as possible,” said Catherine Valega, wealth consultant at Green Bee Advisory.
Scott Bishop, partner at Presidio Wealth Partners, is also not adding to municipal bonds at this time.
“While it can make sense for those at the highest tax brackets, I believe rates have not yet topped out so I am favoring under one-year T-Bills at this time. They have no credit or duration risk. And from my perspective we still may have a recession or a short-term Federal Government shut down, and I think it’s good to play it very low risk for our ‘safe money’ basket, or in other words, bonds,” said Bishop.
That being said, Bishop does plan to look for opportunities to increase duration, and credit
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