Capital Ideas Podcast Short-term bonds: A low-profile asset class shifts into high gear
Nov 13, 2025
Vince Gonzalez, a seasoned short-term bond portfolio manager, dives into the rising interest in short-duration fixed income. He highlights how recent Fed rate cuts have shifted investor sentiment towards stability and income, particularly amid uncertain economic conditions. Vince discusses the importance of active management in this sector, the credit outlook, and why certain securities are attracting attention. He also addresses potential risks, including inflation, and shares insights from his career journey in bond investing.
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Why Short-Term Bonds Suddenly Shine
- Short-term bonds became attractive as two-year yields rose to ~5% while the Fed began cutting rates last year.
- That shift made duration exposure sensible to capture income and potential price upside as rates fall.
Add Duration Near Range Highs
- Add duration when yields sit near the top of your expected range and trim back toward neutral when yields fall.
- Use a range-bound rates view to guide incremental duration moves rather than trying to time extremes.
Build Robustness Against Tail Risks
- Position portfolios to be robust to surprises by raising quality, liquidity, and diversification rather than timing moves.
- Use low-cost hedges, like options, to protect against tail scenarios without sacrificing much alpha.