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Investing continued from page 45

For clients who want to stay short , Patel says the one-to-five-year window is still profitable , with a 2.20 % yield and a taxable equivalent of about 4.75 %. And while the one-year Treasury is yielding 4.85 %, that ’ s just for one year , and the likelihood that in a year the rate will be the same is low , she says . “ So lock in the higher yield today for an extended period of time ,” she recommends .

Over at Schwab , Howard says he likes five-to-seven-year durations . “ That ’ s where relative yields are most attractive . We also suggest clients extend duration a little bit because we ’ re seeing clients put in cash for very short-term investments , concerned about what the Fed is going to do . But we don ’ t think that ’ s the right strategy . We think it makes sense to take advantage of the move up in yields and lock in yields at these attractive levels .”

Pidhirskyj agrees . “ Five , seven , 10 — you want that medium , intermediate duration . You ’ ll get some positive potential returns if the Fed cuts rates ,” he says . “ I don ’ t think another 25 basis points are worth it on the front end . Even if you bet a fully steeper curve , the value would still be in the middle of the curve .”

And finally , a fourth , bonus reason to stay intermediate is that even though currently short-term durations are paying slightly more , historical performance goes all-in on intermediate lengths .

Historically , once the Fed stops raising interest rates , intermediate-term muni bonds perform a lot better than shortterm options . On average , those intermediate durations paid more than 4 % more in total return six months after the peak fed funds rate . For example , in December 2018 , intermediate-term munis paid 3.6 % better , returning 4.8 % compared with 1.2 % for short-term munis .

At a time when the Fed is cutting rates , that certainly would be something to shout about .

MARCH 2023 | FINANCIAL ADVISOR MAGAZINE | 63