Yields are popping again. The yield on the U.S. 10-year Treasury was at a five-week high of 3.75% on Monday, while the 2-year had hit 4.51% — up from around 4% in early February. Since the start of February, the 10-year has jumped 35 basis points, while the 2-year has risen 41 basis points, according to data from market data firm IG, as of Monday morning. “Markets are coming round to the threat that the Fed will maintain a ‘higher for longer’ stance [on interest rates] if sequential pick-up in prices, despite the continued moderation in [year-on-year] inflation, is pronounced,” Vishnu Varathan, head of economics and strategy at Mizuho Bank, said Monday. He added there was also the threat of hot jobs data for January. “This could underpin the run-up in UST yields, alongside a greenback that is discernibly more buoyant (than it has been late-Jan into start-Feb); whilst continuing to dampen, if not drag, equities,” he added. Stocks tumbled last week, with the S & P 500 and Nasdaq ending their worst week in nearly two months. How can investors ride on higher yields? Here’s what the pros say. Stay invested in cash A number of big investors, such as Ray Dalio and Dan Niles, recently said cash remains one of their top investing picks, amid market volatility and as rates remain higher . Cash was a popular trade last year, and yields soared as well amid a bear market. “Depending on risk tolerance and investment time horizon investors now have other options such as short-term CD’s, money-market mutual funds or even 3 or 6-month U.S Treasury bills,” Luis Alvarado, global investment strategist at Wells Fargo Investment Institute, told CNBC Pro. Three-month U.S. Treasury bills — also recommended by Niles — were yielding 4.77% on Monday, while the six-month was at 4.93%. Buy high-quality or short-term fixed income BlackRock Investment Institute said it likes high-quality credit and short-end government bonds “as interest rates stay higher for longer.” “Fixed income finally offers ‘income’ after yields surged globally. This has boosted the allure of bonds after investors were starved for yield for years,” it said in a note last week, adding that the case for investment-grade bonds has “brightened.” “We believe that investors should hold around 2% of cash in their portfolios and should use short-term fixed income (anything below a 2-year maturity) as a proxy for cash,” Alvarado added. Wells Fargo Investment Institute’s tactical portfolios are allocating between 2% (for “aggressive growth investors”) and 17% (for conservative income investors) to short-term fixed income. ETFs Some income ETFs are yielding more than 10%. One such fund, the JPMorgan Equity Premium Income ETF , has captured $2.8 billion in net flows this year, according to FactSet. It was among funds with the largest net orders from retail traders, according to JPMorgan. CNBC Pro also screened for income or corporate bond funds which invest in stocks and bonds that are yielding more than 10% in dividends. The future Investors should ride this wave until the Fed pauses, according to Alvarado. “Eventually, once the U.S. recession is underway and the Federal Reserve begins to cut interest rates, we believe investors should deploy cash and short-term fixed income into more “risk-on” assets like equities, but evidently we are not at that stage yet,” he told CNBC Pro. — CNBC’s Jesse Pound and Ganesh Rao contributed to this report.
