Hello, YieldAlley readers! In this issue:

• Some Fixed Income Options to Consider (Outside of T-Bills)

• Strong Jobs Report Boosts Stocks and Tempers Rate Cut Expectations

• The Most Popular Investing Strategies, by Generation

• And more!

NEWS

Standout Stories

🚢 U.S. ports start 100-day countdown clock to new strike, and automation is poised to be the dealbreaker (CNBC)

📈 A blockbuster US jobs report deflates recession worries — and rate cut expectations (Sherwood)

🧓 The second-largest economy in the world just raised its retirement age. American workers should take notice. (MarketWatch)

🎢 Day Trader Says He Made $306 Million on Tesla, Then Lost It All (Yahoo Finance)

🏡 Traveling in Retirement Is Great. Being at Home Is Harder. (WSJ)

MARKET THOUGHTS

Strong Jobs Report Boosts Stocks and Tempers Rate Cut Expectations

• September employment report exceeded expectations:

  • Nonfarm payrolls increased by 254,000, well above the 140,000 estimate.

  • Job gains for July and August were revised up by 77,000.

  • The unemployment rate ticked down to 4.1%.

  • Hourly earnings rose 4.0% annualized, above the 3.8% estimate.

• Labor market shows resilience while gradually cooling:

  • Q3 job growth averaged 186,000 per month, up from Q2's 147,000 average.

  • Hiring remains concentrated in leisure & hospitality, healthcare, and government sectors.

  • The layoff and discharge rate declined to 1.0% in August, below pre-pandemic norms.

• Bond yields rose in response to the strong jobs data:

  • The 10-year Treasury yield increased to about 3.97%.

  • Markets are now pricing in a slightly slower pace of Federal Reserve easing.

  • Expectations for interest rate cuts over the next 12 months decreased to 1.5%.

• Federal Reserve policy outlook:

  • Fed Chair Powell indicated the FOMC doesn't need to see further labor market cooling to achieve 2% inflation.

  • Markets now expect a 25 basis point cut in November, rather than a larger cut.

  • Financial markets interpreted recent Fed comments as relatively hawkish.

• Other economic developments:

  • The East Coast port strike ended with a tentative deal, removing a potential supply chain risk.

  • WTI oil prices rose due to potential supply disruptions in the Middle East.

INCOME BUILDING

Some Fixed Income Options to Consider (Outside of T-Bills)

Two weeks ago, we wrote about whether it was still a good time to buy T-Bills and Bonds with an interest rate cut looming. The Federal Reserve has since cut rates by 0.50% percent (a slightly more aggressive cut versus the previously expected 0.25%).

We suggested income investors stay the course with their cash and still consider money market funds or ultra-short-term ETFs. Again, this is heavily dependent on your personal financial journey, but generally speaking, there wasn’t much for many income investors to do with their interest-earning cash.

However, we expect the Federal Reserve to continue to cut interest rates as they shift their focus from battling inflation to combating unemployment. You should expect a similar decline in your “risk-free” returns and yields, and some people may wonder what other options are available to them.

First, let’s maintain perspective. Despite recent declines, Treasury rates are still hovering near 15-year highs. Yes, due to rate cuts, interest rates are lower than they were two years ago, but they’re still a generational high and much more attractive than the near-zero rates that plagued fixed income investors in the 2010s.

However, it is natural that income investors will seek alternatives to maintain their returns. Here is a list of fixed income options to consider, ranging from the safest to those with higher potential returns:

1. US Treasuries: These are debt securities issued by the U.S. Department of the Treasury to finance government operations. They're considered the safest investments because they're backed by the full faith and credit of the U.S. government. If capital preservation is your priority and you're satisfied with your current T-Bill strategy, then stick with Treasuries. US Treasuries come in various forms, including Treasury bills (short-term), Treasury notes (medium-term), and Treasury bonds (long-term). Investors can also gain exposure to Treasuries through money market funds and ultra short-term ETFs.

2. Agency Bonds: These are securities issued by government-sponsored enterprises (GSEs) or federal government agencies. Examples include bonds from Fannie Mae or Freddie Mac. While not directly guaranteed by the U.S. government (except in some cases), they're considered very safe and typically offer slightly higher yields than Treasuries. They're a good middle ground for those willing to accept a small increase in risk for potentially better returns.

3. Municipal Bonds: Often called "munis," these are debt securities issued by states, cities, counties, and other governmental entities to fund public projects. Their key appeal is tax advantage — the interest is often exempt from federal income tax and sometimes from state and local taxes, too. When you factor in the tax benefits, municipal bonds generally offer higher yields than Treasuries, making them attractive for investors in higher tax brackets who are comfortable with slightly more risk.

4. Corporate Bonds: These are debt securities issued by corporations to raise capital. They typically offer higher yields than government or municipal bonds because they carry more risk - the company could default on its payments. Investment-grade corporate bonds are issued by companies with strong credit ratings, which offer higher returns with reasonable risk.

5. CDs and Annuities: While not bonds, these are often considered "bond-like" investments. Certificates of Deposit (CDs) are time deposits offered by banks, typically providing a guaranteed interest rate for a fixed term. They're FDIC-insured up to $250,000 per depositor, per bank. Annuities, on the other hand, are insurance products that can provide a steady income stream, often for life. Fixed annuities offer guaranteed rates, while variable annuities' returns can fluctuate based on investment performance. If you choose to buy CDs, we highly recommend brokered CDs over traditional bank CDs due to better rates, higher liquidity, and more flexibility.

As you move down this list, you generally increase potential returns but also take on more risk. We’ve covered some of these, such as CDs and Treasury ETFs, but we’ll dive deep into the many types of fixed income investments in future newsletters. As an example, corporate bonds may be suitable for investors who are looking for higher yield along with higher assumed risk. Yet, the risk of a company such as Microsoft or Apple not being able to pay off its debts is very low. These make such corporate bonds very “safe” bond investments, and we’ll show you how to gain exposure to this income stream.

What's Your Take?

We're curious to hear your thoughts on the current state of fixed income investing. Are you sticking with treasuries despite lower yields, or are you exploring alternatives? How do you balance the desire for higher returns with the need for safety and liquidity in your fixed income portfolio?

Share your insights - we're eager to learn how you're adapting your strategy in this evolving interest rate environment.

INCOME BUILDING

Cash Rates

Government Money Market Funds (7-Day Yields)

• SNVXX (Schwab Government Money Fund - Investor Shares): 4.60%

• SPAXX (Fidelity Government Money Market Fund): 4.61%

• TTTXX (BlackRock Liquidity Funds: Treasury Trust - Institutional Class): 4.83%

• VMFXX (Federal Money Market Fund): 4.84%

Brokered CD Rates (6-Month Rate)

• Charles Schwab: 4.30%

• E*Trade: 4.75%

• Fidelity: 4.35%

• Merrill Edge and Merrill Lynch: —

• Vanguard: 4.35%

ETFs

• SGOV (iShares 0-3 Month Treasury Bond ETF): 5.08%

• BIL (SPDR Bloomberg 1-3 Month T-Bill ETF): 4.98%

• USFR (WisdomTree Floating Rate Treasury Fund): 4.95%

• TFLO (iShares Treasury Floating Rate Bond ETF): 4.99%

BONUSES

Brokerage, Bank and Credit Card Bonuses

Brokerage Bonuses

• E*Trade (still active): Up to $4,000 in bonuses for deposits made within 60 days of enrollment. The lower deposit bonuses are also excellent, with E*Trade offering a bonus of $100 for a deposit of just $50. Offer here.

  • Use promo code PROMO24.

    • $50+ will receive $100

    • $1,000-$24,999 will receive $150

    • $25,000-$49,999 will receive $150

• tastytrade (still active): Offering up to $5,000 in bonuses. Lower deposit bonuses are attractive, with a $100 bonus for a deposit of $5,000 (2% return). Offer here.

• Robinhood (still active): Offering a 1% bonus for transferring any table brokerage holdings. No maximum, but deposits must be held for two years after account opening. Offer here.

Bank Bonuses

• BMO Harris (active) — Earn up to a $560 bonus when you open a new Smart Advantage or BMO Harris Premier checking account. Offer here.

  • Availability: Nationwide

  • Soft credit inquiry

• Axos Bank (active) — $500 when you open a new rewards checking account with promo code RC500 and certain requirements. Offer here.

  • Availability: Nationwide

  • Soft credit inquiry.

Credit Card Bonuses

• American Express Marriott Bonvoy Brilliant Card — Get 185,000 Marriott Bonvoy points after $6,000 in spend within the first six months of account opening. Offer here through October 2, 2024.

  American Express Marriott Bonvoy Bevy Card — Get 155,000 Marriott Bonvoy points after $5,000 in spend within the first six months of account opening. Offer here through October 2, 2024.

• Barclays jetBlue Plus Card (active) — Get 80,000 JetBlue points after $1,000 in spend within the first 90 days of account opening. Offer here.

• Chase Ink Preferred (active) — Get 120,000 Ultimate Rewards bonus points when you spend $8,000 in the first three months after account opening. Offer here.

• Capital One Venture (active) — Enjoy $250 on Capital One Travel in your first year and earn 75,000 bonus miles after spending $4,000 in the first 3 months. Offer here.

• American Express Hilton Surpass Card (active) — 150,000 points Hilton Honors points after spending $2,000 in 3 months. Get an additional 50,000 points after spending a total of $10,000 within the first 6 months. Offer here.

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