The Wild BIL
Investing in Bonds via ETF’s
Volatility in bond and equity markets is set to continue if interest rates continue to rise, which is entirely dependent on what inflation does. While signs of cooling are positive, there are still issues with sticky inflation in wages and rent.
One positive of all this is that stable ETF’s, such as funds like BIL and SGOV, benefit from higher rates — these funds are affordable for most to invest in, at least a little.
The asset class performs best when real rates are positive and the opportunity cost of alternative investments is low. The current macro environment is challenging from an investment and monetary policy standpoint, but those challenges are driving opportunity costs lower, while real rates have a chance to be positive, while the Fed deals with stubborn inflation.
There will be great opportunities to invest in risk assets when rates have finished climbing, which will likely be soon.
What’s the deal
Continued monetary tightening is causing significant volatility in markets. The dramatic increase in short end rates is presenting both a challenge and opportunity. On one hand, higher risk-free rates result in higher discount rates that negatively impact risk asset valuations and cause the price of shares and bonds to decline. On…
