Hello, YieldAlley readers! In this issue:

💸 How to Make 267%—or Lose 90%—on Treasury Bonds (WSJ)

📉 What history reveals about market corrections and crashes (First Links)

🤔 What Do the New Trump Tariffs Mean for Fed Interest-Rate Cuts? (Morningstar)

🍔 With Shake Shack in First Class, Airline Food Is No Longer a Joke (Bloomberg)

📚 A Short History of Tariffs (A Wealth of Common Sense)

In the midst of recent market turmoil triggered by new tariff announcements, many investors are wondering how to best position their portfolios, especially those approaching retirement. Let's explore how to think about your investments during these turbulent times, with particular attention to the role of fixed income in your retirement strategy.

The markets have plunged dramatically in response to the tariff announcements, with major indexes wiping out 12 months of gains. US stocks have fallen by more than 10% since Thursday's open and more than 17% since their February peak, approaching bear market territory. This sudden volatility creates both challenges and opportunities for retirement-focused investors.

While tariffs could exacerbate inflation in the short term, analysts believe the Federal Reserve may now focus more on supporting economic growth rather than fighting inflation. Bond futures markets are now pricing in an 85% chance of more than three rate cuts before year-end, up significantly from expectations before the tariff announcement.

Treasury yields have fallen sharply alongside stocks as investors reduce growth expectations, with the 10-year Treasury yield dropping below 4%. "The market is clearly more concerned with economic growth than they are with inflation from the tariffs," notes one strategist. This shift creates immediate implications for retirement income investments.

If you're approaching or in retirement, this environment presents a strategic window. During highly volatile times, if you've been considering going long on bonds and strongly believe a recession is near, your best approach may be to start moving cash, money market funds, and T-bills into longer-dated bonds to lock in current rates before they potentially drop.

This is particularly relevant because the classic response to a recession is to lower interest rates to encourage economic growth, meaning the yield currently available on T-bills, money market funds, and cash will likely decrease. Even though the Fed generally only controls short-term rates, long-term rates have historically tended to follow a similar downward path during recession fears.

To maintain confidence during this volatility, it helps to consider the broader historical picture. Market downturns are not new. According to the Morningstar "pain index," the most painful stock market periods combine both steep declines and long recovery times. The four most painful periods in history included the Great Depression (79% decline, 21.2-year recovery), the "messy 1970s" (51.9% decline, 14.6-year recovery), World War I and influenza (51% decline, 13.5-year recovery), and the "lost decade" from 2000-2013 (54% decline, 12.8-year recovery).

Over the 95.5 years from August 1929 to January 2025, investors spent approximately 73.5% of their time in bear markets. Yet despite this, markets have always eventually recovered and moved higher. This historical resilience provides important perspective when navigating today's tariff-induced volatility.

While cash might look tempting during market volatility, it's important to resist the urge to shift entirely out of stocks. Such a move might provide short-term relief but creates another nagging worry: determining when to get back in.

A cash-only approach also only protects against one risk - further equity losses - but doesn't safeguard against other key trouble spots — specifically, inflation risk or the chance that you'll outlive your money because your portfolio didn't grow enough.

A better plan is to maintain a stock/bond mix that makes sense relative to your goals, life stage, and proximity to needing your money, then rebalance back to your targets periodically.

For retirees, experts recommend maintaining one to two years' worth of anticipated portfolio withdrawals in cash reserves, plus another five to eight years' worth of anticipated portfolio withdrawals in high-quality bonds to provide a buffer against prolonged stock market weakness.

New tariffs are raising concerns about a potential recession while simultaneously increasing inflation risks. This creates a particularly challenging environment for retirees, whose portfolios typically contain more cash and bonds with limited growth potential. While Social Security provides inflation adjustment, portfolio withdrawals don't automatically adjust for rising prices, making inflation-protected assets like TIPS and I-bonds essential components of retirement portfolios during tariff-driven economic uncertainty.

Your investment approach to the current tariff situation should differ based on your proximity to retirement:

If you're still many years from retirement, history suggests staying invested in the stock market may be the wisest approach. After long, bad market periods, markets tend to recover quickly and steeply, and it's nearly impossible to time these upward spikes.

During previous major downturns, investors who dollar cost averaged into their retirement accounts regardless of market conditions ultimately benefited from "riding the wave down and then riding the wave all the way back up and beyond."

If you're about to retire or already in retirement, during highly volatile periods you might consider moving some cash, money market funds, and T-bills into longer-dated bonds to lock in current rates before they potentially come down in a recession.

This might be especially prudent if you're already retired and have no appetite to wait out a potential downturn. If you've been dollar-cost averaging into longer-dated bonds, you might consider increasing those amounts.

Bond futures markets are now pricing in a higher chance of rate cuts at the Fed's May meeting and throughout the rest of the year in response to recent tariff announcements. Traders now see a roughly 30% chance that the central bank cuts rates at its May meeting, compared with the 22% odds given previously, creating a potential closing window for locking in higher yields.

One of the few benefits of market downdrafts is the opportunity to improve your tax position during tariff-induced volatility.

If you have taxable accounts, you may be able to sell securities at a loss and apply those losses to offset capital gains elsewhere in your portfolio or up to $3,000 in income. Unused losses can be carried forward indefinitely.

Converting traditional IRAs to Roth IRAs is also worth considering in times of market turmoil. Depressed IRA balances mean that you can convert more of your account with the same tax impact as when stocks were riding high.

The current market volatility driven by new tariffs and economic uncertainty requires thoughtful portfolio adjustments based on your retirement timeline. For those approaching retirement, increasing allocation to fixed income — particularly longer-dated bonds and inflation-protected securities — may provide stability while capturing higher yields before potential rate cuts. For younger investors, staying the course through this tariff-induced volatility and viewing market declines as buying opportunities aligns with historical patterns of eventual recovery and growth.

Government Money Market Funds (7-Day Yields)

Brokered CD Rates (6-Month Rate)

ETFs (30-Day Yields)

US Bank has brought back its business checking account promotion with slight modifications, now offering bonuses of $500 or $900 for new business checking accounts. You can open an account online if you're within US Bank's service area, or if you have an existing relationship with the bank. The US Bank Business Triple Cash card with its $500 bonus could be an excellent way to establish that initial relationship.

The maximum bonus has increased from $800 to $900 with the same deposit requirements, though you'll now need to specifically open a Platinum Business Checking account for the top-tier bonus. The difference between the tiers is substantial - $5,000 deposit for the $500 bonus versus $30,000 for the $900 bonus, with funds needing to remain in the account for approximately 30 days.

For us, bank bonuses continue to be an excellent, low-risk way to generate additional income conveniently. We evaluate bank bonus opportunities using our risk-reward-effort matrix, factoring in time commitment, documentation requirements, and opportunity cost against potential returns.

When comparing to other cash instruments, this $900 bonus on $30,000 for 90 days yields an annualized return of approximately 12%, significantly outperforming current high-yield savings accounts (4-5%), 3-month Treasury bills (SGOV: ~5.1%), and even 1-year CDs (5.5-5.7%) with comparable liquidity constraints. For the effort involved, this promotion ranks among the more efficient capital deployments currently available in the banking sector.