Did I Miss A Rate Hike?

The title for this post is inspired by the following post on Threads. 

Fixed income, meaning intermediate and longer term duration, is having a rough 2024 after a meh 2023 and terrible 2022.

For most of those ETFs you can add 100-125 basis points back in for dividends. For TLTW which is TLT with a covered call overlay you can add back about 300 basis points.

The idea of avoiding or at least really minimizing exposure to intermediate and longer duration has been an evergreen topic for quite a while. My take has evolved from rates in that part of the market were way too low (extreme interest rate risk) to believing that this part of curve has become very volatile and that the volatility is unreliable making bonds ineffective for diversifying equity volatility. The front of the curve is ok and of course there are segments of the equity market that take interest rate risk but that kind of volatility from equities is fine, I don't want it from income sectors. 

We've written countless posts on this for many years. My framing of this has never been to try to predict what interest rates will do. I gave that up in something like 2010. With rates at all time lows, they were by definition more risky than they'd ever been regardless of whether there was ever going to be a consequence for that risk. Isolating the risk was easy. Knowing when it would matter was not. Similarly, recognizing that bonds are now more volatile and the 40 year bull market has ended is easy. Knowing what comes next is not. 

I don't know what comes next but just under 5% for 5-10 years does not make sense to me when we can get just over 5% for one year and in some other short term sectors, probably best accessed through funds, you can get more than 5%.

A few months ago when six rate cuts were expected, a lot of pundits said investors should go into the belly of the curve of even further, I disagreed based on the volatility first and foremost and the belief that not quite 5% just isn't enough compensation for 10 years or longer. Taking 5% for ten years when volatility dies down, eventually it could recede, might make sense but that is not where we are today. 

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