Hello, YieldAlley readers! In this issue:

• 8 key bond investing risks.

• Recapping Fed Chair Powell's Jackson Hole speech.

• Ford scraps all-electric SUV plan.

• The best way to track and monitor the highest cash rates.

• And more!

NEWS

Standout Stories

🤖 Alphabet's Waymo robotaxi unit doubles its paid rides in three months (Reuters)

🛒 Kamala Harris Wants to Ban Price Gouging. What Do Economists Say? (WSJ)

🚗 Ford scraps all-electric SUV plan, saying drivers want hybrids (NPR)

🏡 Home sales rose in July for the first time in five months (CNBC)

🚀 NASA to bring stranded astronauts back on SpaceX capsule, not Boeing Starliner (Fortune)

MARKET THOUGHTS

Fed Signals Rate Cuts, Stocks Rally as Markets Eye September Policy Shift

• U.S. stocks posted strong gains following Fed Chair Powell's Jackson Hole speech, indicating a shift towards rate cuts.

  • All three major U.S. indexes moved higher by over 1% on Friday.

  • The S&P 500 has rebounded over 8% since the August 5 market decline.

  • The Nasdaq has rallied more than 10% in the same period.

  • Both indexes remain up over 17% year-to-date.

• Fed Chair Jerome Powell signaled the central bank's readiness to begin cutting interest rates.

  • Powell stated that "the time has come for policy to adjust".

  • He noted growing confidence that "inflation is on a path to 2%".

  • The Fed is expected to cut rates by 0.25% at its September meeting.

  • Analysts anticipate two to three rate cuts total for 2024.

• Market volatility has decreased significantly since early August.

  • The VIX "fear gauge" has dropped from a high of 65 to around 16.

  • This level is in line with the VIX's average for the year.

• Upcoming inflation data will be crucial for market sentiment.

  • The PCE inflation report, the Fed's preferred measure, is due next Friday.

  • Headline PCE inflation is expected to tick up slightly to 2.6% from 2.5%.

  • Core PCE inflation is anticipated to rise to 2.7% from 2.6%.

  • Both figures remain below the Fed's 2024 forecasts.

• The economic outlook remains cautiously optimistic.

  • The U.S. economy is seen as "cooling but not collapsing".

  • Inflation continues to moderate.

  • The unemployment rate of 4.3% is now above the Fed's 2024 expectation of 4.0%.

  • Analysts recommend using market volatility as an opportunity to diversify and rebalance portfolios.

INCOME BUILDING

8 Crucial Risks Every Bond Investor Must Understand

As we explore bond investing, it's essential to understand that while bonds are often viewed as a more conservative investment option compared to stocks, they come with their own set of risks. Let's examine eight key bond investing risks that every investor should be aware of.

1. Credit Risk:
   This risk relates to the possibility of the bond issuer defaulting on their payments. It's particularly relevant for corporate bonds, where the issuer's financial health directly impacts their ability to meet debt obligations.

2. Interest Rate Risk:
   When interest rates rise, the value of existing bonds typically declines. This inverse relationship can significantly affect the market value of bond holdings, especially for longer-term bonds.

3. Reinvestment Risk:
   This occurs when interest rates fall, and investors face challenges reinvesting their interest payments and returned principal at lower rates, potentially impacting overall portfolio yield.

4. Inflation Risk:
   Inflation erodes the purchasing power of fixed bond payments. If inflation outpaces the bond's interest rate, investors may experience negative real returns.

5. Liquidity Risk:
   Some bonds may be difficult to sell quickly without incurring substantial losses, particularly those that are less frequently traded.

6. Currency Risk:
   For investors holding foreign bonds, currency fluctuations can impact returns. A weakening foreign currency can reduce the investment's value when converted back to the investor's home currency.

7. Country Risk:
   This encompasses factors like political instability, economic challenges, or regulatory changes in the bond issuer's country, which can affect repayment ability or bond value.

8. Call Risk:
   Some bonds come with call provisions, allowing issuers to redeem them before maturity. This can force investors to reinvest at potentially lower rates, especially if interest rates have declined since the bond's initial issuance.

When considering bond investments, it's also crucial to understand two fundamental principles. First, there's a direct correlation between risk and potential returns: bonds with higher risk profiles typically offer higher yields, reflecting investors' demand for greater compensation when assuming additional risk. Second, the time horizon of a bond investment significantly impacts its risk exposure. Longer-term bonds are generally more susceptible to various risks, such as interest rate fluctuations and inflationary pressures. As a result, investors typically expect higher yields for committing their capital over extended periods.

Remember, while bonds generally offer more stability than stocks, they are not risk-free. A balanced approach, considering both the potential returns and the associated risks, is key to successful bond investing.

What's Your Take?

We'd love to hear from our readers about their experiences with bond investing. Have you encountered any of these risks in your own portfolio? How do you balance the need for income with the desire to minimize risk? Share your insights and strategies by replying to this email – your perspective could be invaluable to fellow readers navigating the complex world of bonds!

INCOME BUILDING

Cash Rates

Government Money Market Funds (7-Day Yields)

• SNVXX (Schwab Government Money Fund - Investor Shares): 4.99%

• SPAXX (Fidelity Government Money Market Fund): 4.98%

• TTTXX (BlackRock Liquidity Funds: Treasury Trust - Institutional Class): 5.19%

• VMFXX (Federal Money Market Fund): 5.25%

Brokered CD Rates (6-Month Rate)

• Charles Schwab: 4.70%

• E*Trade: 4.65%

• Fidelity: 4.65%

• Merrill Edge and Merrill Lynch: —

• Vanguard: 4.65%

ETFs

• SGOV (iShares 0-3 Month Treasury Bond ETF): 5.23%

• BIL (SPDR Bloomberg 1-3 Month T-Bill ETF): 5.17%

• USFR (WisdomTree Floating Rate Treasury Fund): 5.26%

• TFLO (iShares Treasury Floating Rate Bond ETF): 5.29%

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