Government bonds tend to do well versus stocks in a recession

Running Point and its chief investment officer, Michael Ashley Schulman, CFA, were quoted by U.S. News & World Report in an article — by Tony Dong, “5 Great Fixed-Income Funds to Buy for 2023” — regarding fixed income vehicles to invest in while waiting for an economic downturn.

What to make of an inverted yield curve?

As long as the U.S. Treasury yield curve remains inverted, we will strongly consider buying government bonds with maturities near the yield curve’s high point. For several of our corporate clients, we’ve tailored T-bill portfolios that handily out-earn bank accounts. The bonus with T-bills (and Treasuries) is that income earned on them is not subject to state income taxes (whereas income earned in bank accounts is subject to state income taxes).

Bonds with longer maturities could do well if interest rates decline, but are likely to be hurt if inflation exceeds expectations.

Quoted article excerpts are below:

Low-risk investors seeking preservation of capital and high liquidity can consider VMFXX, which seeks to maintain a stable net asset value, or NAV, of $1. Money market funds like VMFXX are as conservative as it gets. Thanks to rising interest rates, VMFXX currently has a seven-day SEC yield of 4.2%. The fund charges a 0.11% expense ratio and requires a $3,000 minimum investment.

Michael Ashley Schulman, partner and chief investment officer at Running Point Capital Advisors, likes VMFXX. “Based on the yield curve’s distinct shape, which is currently inverted with six-month T-bill yields near 4.7% and 10-year yields almost 1% lower at 3.8%, we would be (and have been) large buyers of short-term government bonds in the three-month to nine-month range,” Schulman says.

Disclosure: The opinions expressed are those of Running Point Capital Advisors, LLC (Running Point) and are subject to change without notice. The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass. Past performance is not indicative of future results. Forward-looking statements cannot be guaranteed. Running Point is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Running Point’s investment advisory services and fees can be found in its Form ADV Part 2, which is available upon request. RP-23-01