Hotta Liesenberg Saito LLP logo

Hotta Liesenberg Saito LLP

970 West 190th Street, Suite 900

Torrance, CA 90502-1052

 

Phone: 424-246-2000

Fax:     424-246-2005

July 2019

Terms Income Investors Should Know

Terms Income Investors Should Know

If you are an income investor, you’ll want to understand what yield curve, inversion and laddering are all about. Here’s why:


WHY THEY MATTER
When business print publications and websites breathlessly reported that the yield curve had inverted earlier this year, many casual investors wondered what this was all about. Inversion happens when short-term U.S. Treasury securities pay more than 30-year Treasury bonds do. Typically, bonds with longer maturities yield higher returns than shorter-term bonds and notes, rewarding investors for their patience.


Think of a normal yield curve’s shape as looking like the left half of a lowercase letter “n.” The lower end on the left signifies short-term, lower-yielding bonds, and it works its way up and to the right for longer-term securities. This is often a sign of a healthy economy. When the curve inverts, it looks like the left half of a letter “u.”


An inverted yield curve often signifies a troubled economy ahead. In unsettled times, investors from around the world, including governments, flock to buy 30-year Treasury bonds because they are backed by the full faith of the U.S. government. Higher demand drives down yields, bringing them to the same level as or below those of two-year Treasury securities, whose yields may rise because of an uncertain short-term economy.


LADDERING
Income investors who worry about interest risk and those seeking to provide a predictable source of income from fixed-income securities often use laddering in an attempt to minimize risk and ensure consistent liquidity.


A fixed-income ladder can include individual bonds, bond mutual funds, bank CDs and even fixed annuities. A typical laddered portfolio’s maturities will be spread out, thus ensuring steady income over time. Talk to your financial professional to learn more.


SUBSCRIBE

Enter your Name and Email address to get
the newsletter delivered to your inbox.

Please include name of person that directed you to my online newsletter so I can thank them personally.


CONTACT US

Enter your Name, Email Address and a short message. We'll respond to you as soon as possible.

The information and opinions contained in this web site are obtained from sources believed to be reliable, but their accuracy cannot be guaranteed. The publishers assume no responsibility for errors and omissions or for any damages resulting from the use of the published information. This web site is published with the understanding that it does not render legal, accounting, financial, or other professional advice. Whole or partial reproduction of this web site is forbidden without the written permission of the publisher.