Money For the Rest of Us

How To Lock In Higher Yields In Case Interest Rates Fall

Jan 24, 2024

Learn how to lock in higher yields by purchasing longer-term individual bonds and bullet ETFs. Understand the impact of short-term interest rates, inflation expectations, and term premiums on long-term interest rates. Discover the concept of yield to maturity and how it guides fixed returns. Analyze bullet ETFs, callable bonds, and municipal bonds for higher yields. Explore strategies to lock in higher yields, such as investing in bullet ETFs or individual bonds with longer maturities.

29:37

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Quick takeaways

Investors can lock in higher yields by investing in longer-term bonds or bullet ETFs due to the anticipation of lower cash yields.

Yield to maturity is an estimate of the total return if a bond is held until maturity, accounting for coupon rates and the price paid for the bond.

Deep dives

Locking in Higher Yields with Bullet ETFs and Bonds

Investors can lock in higher yields by investing in longer-term bonds or bullet ETFs due to the anticipation of lower cash yields. Market participants expect a decline in cash yields, including CDs and money market mutual funds, as central banks like the U.S. Federal Reserve adjust policy rates. Longer-term interest rates are influenced by expectations for future short-term interest rates, as well as inflation expectations and term premiums. By purchasing individual bonds or bullet ETFs, investors can lock in higher yields and benefit from the optionality of potential rate decreases.

Introduction

4min

Understanding the Factors Influencing Interest Rates

2min

Locking in Higher Yields through Bonds

3min

Understanding Yield to Maturity for Bonds

9min

Analyzing ETF Returns and Exploring Yield Lock-In Strategies

2min

Locking in Higher Yields and Building a TIPS Ladder

10min

How to Lock in Higher Yields in Case Interest Rates Fall

2min

With cash yields expected to fall, here's how you can keep your portfolio income elevated by purchasing longer-term individual bonds and bullet ETFs

Topics covered include:

How future short-term interest rates, inflation expectations, and term premiums impact long-term interest rates
How each of those rate drivers contributed to the close to 1% drop in interest rates in the past three months
How yield to maturity is our guide to locking in a fixed return using individual bonds or bullet ETFs
How bullet ETFs work and what are some examples
What are callable bonds and how to analyze them
How to analyze municipal bonds
Why we might want to lock in higher yields today

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Show Notes

Term Premium on a 10 Year Zero Coupon Bond—FRED Economic Data

Investments Mentioned

Vanguard Total Bond Market ETF (BND)