May 22nd 2023
This is the email to which I want you to pay the most attention.
A bond ladder is the most crucial idea I can give anyone looking to lock in yields and preserve capital. With a bond ladder, you can preserve capital and collect coupons(income) and only have a shred of concern about rates outside the ladder once the bond(s) mature.
Why it matters now more than ever!
Congress and the executive branch must pass a debt limit. They have no Choice! IT WILL BE PASSED!
What happens next will be the deal of a lifetime.
The United States Treasury has been running on its reserves for too long and must issue large amounts of new debt to catch up. Please see the data Here.
The number is over a trillion to catch up, not including future spending. What is unbelievably appealing about this terrible situation is two things:
The issued bonds will have higher yields than past issuances, a benefit for investors.
The amount of debt needed to be issued will pressure existing bond yields. That includes corporations, agencies, existing treasuries, and municipalities, all of which will react to the pending debt issuance requirements of the United States.
Stress in the bond market is a different beast than stresses in other investments. I love it when I hear bond stress; that means better, more attractive yields. Once a bond is purchased, that yield is captured and is a static number the investor can rely on until the bond matures.
What you need to know:
The crucial part of any bond ladder or fixed-income strategy is tracking inflation and the economy.
If inflation goes down, bonds go up, and yields go down, which is what we want.
If inflation goes back up, bonds will go down, and yields will go back up, which is not what we want.
My work indicates that inflation is decreasing, and now is the time to execute this plan.
If you want more information on how a bond ladder works, please feel free to reach out.
All my best,
Christopher R Lakian