Saira Malik points out that certain segments of the fixed income market are becoming increasingly appealing as bond yields rise, particularly following a robust May jobs report that saw payrolls increase by 172,000, far exceeding the expected 80,000. The 10-year Treasury yield reached 4.548%, while the 2-year note hit 4.178%.
Malik identifies high-yield municipal bonds as a key opportunity, noting their attractive yields and tax benefits, especially for investors in higher tax brackets. She mentions that these bonds are gaining traction after lagging last year due to high supply, and she appreciates their improved quality and strong fundamentals, supported by states' robust rainy day funds.
The tax-equivalent yields for these bonds are nearing 10%, making them a compelling choice despite their lower ratings compared to investment-grade munis. Malik also sees potential in bank loans, which offer floating interest rates that can help mitigate inflation risks, yielding around 8% for loans up to three years.
Lastly, she favors preferred securities, which combine features of stocks and bonds, currently yielding above 6% and often benefiting from favorable tax treatment. These investment options, according to Malik, not only provide solid income but also serve as effective diversifiers in a portfolio