• See 2-year rates as peaked but 10-year room to rise

• Rising rates usher in new era for fixed income

• AI is not a substitute for experience when predicting market trends

According to the latest InspereX Pulse Survey of 384 financial advisors, the majority (62%) believe rates on the 2-year U.S. Treasury are at peak now, while 26% believe rates will hit 6%, and 12% say between 7-9% over the next 18 months.

They do not believe the same for the 10-year, suggesting the inverted yield curve may be coming to an end: 34% believe 10-year rates have peaked, 24% expect rates to hit 5%, while 31% expect them to hit 6%, 10% say between 7-9% and 1% over 9% over the next 18 months.

“The rising rate environment has meant one thing for fixed income markets: bonds are back and once again at the forefront of the asset allocation discussion,” said John Tolar, Head of Fixed Income Sales & Trading. “Here at InspereX, we saw sales reach 10-year highs in both October and November, with more than $12 billion in fixed income notional value distributed. Our results were driven by robust sales for InterNotes, corporate debt offerings designed for individual investors, which had their best performance of the year in November.

“InspereX pioneered delivering institutional-quality fixed income investment strategies to the retail market. As we approach our 25^th anniversary year, we are pleased to continue offering investors access to opportunities and issuers access to diversified funding sources.”

Rising Rates Benefiting Advisors

According to the financial advisors surveyed, higher-yielding fixed income has had a positive impact on their business.

More than two thirds (68%) said their clients are moving some of their equity allocation into fixed income. Further,

• 65% said higher rates have made their conversations with clients more positive in tone.
• 61% said their clients are eager to lock in higher rates for as long as possible.
• 52% said higher rates have made it easier to win new business.

That said, advisors offered a word of caution about higher rates: 59% said investors are only looking at rates and don’t understand you can lose money in fixed income. More than half (55%) did not believe that the 60/40 portfolio was back.

“It’s refreshing to see advisors express optimism within fixed income markets moving forward, as they’re forecasting an end to the prolonged inversion of the yield curve,” Tolar said. “Interestingly, in last year’s survey, 74% of advisors said they expected the inverted yield curve to continue into the second quarter of 2023, including 40% who expected it to last beyond the third quarter. If advisors are correct again, perhaps curve steepening will come to fruition in 2024.”

Advisors, Investors Aligned on Concerns…For the Most Part

Advisors say they and their clients are largely aligned over their biggest concerns going forward. However, they diverge on the subject of stock market correction – saying it’s the second biggest worry for clients, but the last worry for advisors. The list of worries by advisors and clients are:

Individual Bonds Helping with Customization, Showcasing Value

In 2024, advisors are more likely to increase their use of individual bonds to generate income for clients than any other type of investment. Specifically, the top five investments they plan to use more for income include:

• Individual bonds – 35%
• Dividend paying stocks – 34%
• Bond funds/ETFs – 30%
• Cash or cash equivalents – 28%
• CDs – 25%

Notably, 66% of advisors are embracing the benefits of individual bonds with their clients.

The top three reasons advisors said they used individual bonds in client portfolios are:

• Helps me customize client portfolios – 30%
• Helps me show added value to clients – 17%
• Helps improve overall performance – 17%

“Advisors are once again embracing the benefits of individual bonds to help achieve their clients’ needs and goals, address personal preferences and elevate the perceived value of their service,” Tolar said. “As yield has returned to the market, advisors have acted on the opportunities to secure income for their clients and insulate portfolios from potential broad market drawdowns and the near certainty of heightened market volatility in the coming year. The growing likelihood of the higher-for-longer environment has also been especially beneficial for their bottom lines.”

Advisors and Clients: Relationships Over Performance?

Financial advisors are far more likely to say their relationships with their clients – and not customized solutions or portfolio performance – is what sets them apart from the competition. More specifically, advisors believe the following are their competitive advantages:

• Relationship with clients – 57%
• Financial planning strategies – 16%
• Experience in market downturns – 11%
• Portfolio performance – 7%
• Use of customized investment solutions – 7%
• Advanced technology – 2%

The three most concerning behaviors they see in their clients are:

• Often influenced by what they read and hear from the investment media – 28%
• Short-term thinking vs. long-term view – 27%
• Expectations of stock market performance are too high – 23%

When it comes to the impact of AI and technology on their business, advisors welcome new platforms, but believe AI will never be a substitute for experience:

• 79% said they would welcome more technology to help monitor client portfolio performance.
• 63% said real world experience is better at predicting market trends than technology.

The Pulse Survey was conducted among 384 financial professionals from RIAs, banks, broker dealers, and regional firms from October 23-30, 2023 by RedZone Marketing on behalf of InspereX. During the survey period of October 23 – 30, the 2-year closed as high as 5.145%, while the 10-year closed as high as 4.961%. The S&P 500 closed as high as 4,247.

About InspereX

InspereX is a leading underwriter and distributor of fixed income and market-linked securities to more than 1,500 broker-dealers, institutions, asset managers, RIAs, and banks. The firm represents more than 400 issuing entities and has underwritten more than $700 billion in securities. Its pioneering BondNav^® platform provides deep access to fixed income market data across asset classes with a focus on delivering true price transparency and the information advantage gained through data aggregation. InspereX has seven trading desks and more than 160 employees with principal offices in Delray Beach, San Francisco, Chicago, and New York City.

©2023 InspereX®. All rights reserved. Securities offered through InspereX LLC, Member FINRA/SIPC. Technology services provided by InspereX Technologies LLC. InspereX LLC and InspereX Technologies LLC are affiliates. InspereX and insperex.com are trademarks of InspereX Holdings LLC.

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