According to Collin Martin, head of fixed income research and strategy at the Schwab Center for Financial Research, the bond market is expected to remain volatile as inflation persists and the Federal Reserve may consider a rate hike following recent economic data.
He forecasts that the yield on the 10-year Treasury note will likely remain between 4% and 4.5%, but warns that yields could rise further, advising against increasing duration in bond portfolios.
Martin highlights three investment opportunities for income investors: investment-grade corporate bonds, which currently yield around 5% and are supported by strong corporate fundamentals; high-yield bonds, which may be riskier but have improved quality in the market; and preferred securities, offering yields around 6% with favorable tax treatment.
He emphasizes the importance of diversification and suggests using ETFs for exposure to these asset classes, noting specific funds like the Schwab High Yield Bond ETF and the iShares Preferred and Income Securities ETF, which provide attractive yields and low expense ratios