Locking in Return with Bonds

To our clients and friends:

As we referenced in our Monday missive,

• the Federal Reserve is focused on solving our current inflation problem with the only tool they have available - increasing short term rates which in turns slows growth in credit availability and economic growth.

• Furthermore, in their latest press conference, the Fed Chairman, Jerome Powell, stated that the Fed understands this will cause great pain to the economy and to investors but is committed to this plan.

The markets reacted swiftly this week such that the  fixed income market is providing interest rates at levels we have not seen in 12-15 years. 

• The 2 year Treasury is  at the time of this note yielding 4.167% and the 10 year is yielding 3.74%. 

Not only are we at decade highs in yields, the inversion in the yield curve (in other words, the 2 year Treasury yield higher than the 10 year) points strongly to a pending recession.  This recession (which we warned about in March) will be one of many pain points we are likely going to feel over the next 12-24 months.

As we reconsider investment options to help minimize the damage the Fed is likely to cause in our portfolios, and amending the position in our Monday note about avoiding fixed income,

• We will be adding Treasuries to portfolios to provide a degree of safety and return.

• We will be buying individual bonds with maturities of 6 months, 12 months and 2 years to lock in the attractive interest returns with laddered maturities to provide cash flow in these periods of time.

Our approach to equities going forward continues to be very cautious.   We will likely get excited again once the rate of unemployment rises to 5% or the inflation rate falls below 5%.  

More to come as markets evolve. Don’t hesitate to connect with us with questions and suggestions.

Jeff and Biff

CrossGrain Family Investments, LLC is a federally-Registered Investment Adviser. All views, expressions, and opinions included in this communication are subject to change. This communication is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services. Any information provided has been obtained from sources considered reliable, but we do not guarantee the accuracy or the completeness of any description of securities, markets or developments mentioned. We may, from time to time, have a position in the securities mentioned and may execute transactions that may not be consistent with this communication's conclusions. Please contact us at 804.217.2561 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions. Additionally, we recommend you compare any account reports from CrossGrainFI with the account statements from your Custodian. Please notify us if you do not receive statements from your Custodian on at least a quarterly basis. Our current disclosure brochure, Form ADV Part 2, is available for your review upon request, and on the SEC website, https://adviserinfo.sec.gov. This disclosure brochure, or a summary of material changes made, is also provided to our clients on an annual basis.