Haven
It’s a License to Yield, but the plot’s gone rogue. When safe havens wobble, it’s time to hedge like a double agent.
The word bond never turned so many heads without any reference to a martini-sipping Brit in a tux or the digits 007. No, this drama centres around U.S. Treasuries, which finally rebounded last week. The week prior, deep selloffs had pushed the ten-year yield up 60 basis points in just three days – the largest increase since 1982.
But here’s the twist: bonds and stocks were both sinking at the same time. That’s highly unusual because bonds are usually the top pick in a volatile market. Either investors were having some serious trust issues, or something bigger was at play.
Maybe it was China – the second largest foreign holder of U.S. Treasuries – retaliating against tariffs by selling off some part of their US$760b U.S. debt holding. Or maybe the issue was closer to home as American hedge funds made a dash for cash, unwinding large leveraged positions. Unravelling basis trades could have certainly amplified the downward pressure on Treasuries.
Whatever the cause, the pace of yield acceleration was a concern for money managers across the world. Investors found themselves asking that troubled question: Where to turn to when even the safe haven isn’t safe?
Enter the 'bond ladder' strategy – less spy thriller, more finance nerd Zen garden. It’s a way to manage interest rate risk by staggering bond maturities, reinvesting as each rung matures.
If that sounds a bit too complex, there’s good news. Some ETFs like LifeX 2035 Term Income ETF ($LDDR) recreate this strategy, distributing around 11% of invested principal and interest every month.
For those who prefer income from stocks, dividend-paying blue chips like Johnson & Johnson ($JNJ) and Coca-Cola ($KO) are holding their own. They're not flashy, but in times like these, boring is beautiful – especially when your product is something people still buy in a downturn or trade war.
We’ll be watching on the edge of our seats, because the year promises more twists. Some tariffs are being walked back with one hand, while tech exports to China are blocked with the other – sorry, Nvidia ($NVDA).
So whether you’re climbing the bond ladder or sipping dividends like a cold Coke, just remember: in today’s market, shaken and stirred might be the new normal.
