Hello, YieldAlley readers! In this issue:
Vanguard's 2026 Bond Outlook: Why They Think It's Time to Move Beyond Cash
Federal Reserve Keeps Rates Unchanged as Consumer Confidence Slides
Costco Uber Gift Cards: $100 Value for $79.99 (20% Discount)
3 Key Tax Changes for U.S. Investors in 2026
And more!
NEWS
Standout Stories
💵 How to invest your next dollar (Vanguard)
📉 Different Dollar Downside (Goldman Sachs)
🏝️ Should You Stop Working When You Become Financially Independent? (A Wealth of Common Sense)
3️⃣ 3 key questions for investors about Kevin Warsh, Trump's pick to lead the Fed (CBS)
🏧 ‘Trump Accounts’ for Kids Come With $1,000—and Tax Complications (WSJ)
MARKET THOUGHTS
Federal Reserve Keeps Rates Unchanged as Consumer Confidence Slides
ECONOMY
The Conference Board's gauge of consumer confidence tumbled to 84.5 in January from 94.2 in December, hitting its lowest level since May 2014 as consumers' views on the economy and labor market weakened. Initial jobless claims came in at 209,000 for the week ended January 24, a slight decline from 210,000 the prior week, while continuing claims fell to 1.83 million, the lowest since September 2024. Durable goods orders rebounded 5.3% in November after October's 2.1% decline, with core capital goods orders rising 0.7%, while producer prices increased 0.5% month-over-month in December, exceeding the 0.2% estimate as service prices rose 0.7% driven by a 1.7% jump in wholesaler and retailer margins. The Federal Reserve held the benchmark fed funds rate unchanged at 3.50%-3.75% in a 10-2 vote, with the policy statement noting the economy "has been expanding at a solid pace" and inflation remaining "somewhat elevated," while Chair Powell asserted rates don't appear "significantly restrictive" and indicated decisions will be made meeting-by-meeting. President Trump nominated former Fed Governor Kevin Warsh to chair the central bank, who would succeed Powell when his term expires in May if confirmed by the Senate.
STOCKS
The S&P 500 advanced and topped 7,000 intraday before retreating from its new high, with large-cap value stocks gaining and outperforming growth counterparts while small- and mid-cap stocks lagged and finished the week lower. Within the S&P 500, communication services and energy sectors led the way, while health care pulled back the most. The Dow fell 0.24% for the week but remained up 1.73% year-to-date, the S&P 500 gained 0.34% weekly and 1.37% YTD, the Nasdaq advanced 0.17% for the week and 0.95% YTD, while the S&P MidCap 400 and Russell 2000 declined 1.42% and 2.08% respectively but held strong YTD gains of 4.00% and 5.31%.
FIXED INCOME
Treasuries posted modest gains during the week, with the 10-year yield declining one basis point to 4.23% and the 30-year bond yield falling one basis point to 4.85% by Thursday's close, while the two-year yield dropped one basis point to 3.56% as traders digested higher-than-expected jobless claims and a wider trade deficit. Futures markets were pricing in four basis points of rate cuts at the Fed's March meeting with a cumulative 48 basis points of cuts by year-end 2026. Municipal bond visible supply rose $107 million to $11.192 billion on Thursday, below the 12-month average of $13.840 billion, while mortgage rates edged higher with the 30-year fixed rate up one basis point to 6.10% for the week ending January 29.
INCOME BUILDING TIP
Vanguard's 2026 Bond Outlook: Why They Think It's Time to Move Beyond Cash
Vanguard released its Q1 2026 Active Fixed Income Perspectives report, and their core message is straightforward: cash is no longer the best place for income investors. Here's a summary of their key points.
The Shift Away from Cash
According to Vanguard, bond funds returned more than double what cash instruments delivered in 2025. They note that investor behavior is already changing. In 2023, money market funds captured over 80% of all fixed income inflows. By 2025, that split moved to 50/50 between money markets and bond funds, with more than $600 billion flowing into bond mutual funds and ETFs.
Vanguard expects income (not price gains) to be the primary driver of bond returns in 2026. Their view is that intermediate duration bonds now offer better yields than cash, and if the Fed cuts rates further, that gap will widen.
Current Yield Levels
The report shows yields across major fixed income sectors as of December 31, 2025:
Sector | Yield to Worst |
|---|---|
U.S. High Yield | ~8% |
Emerging Markets | ~7% |
Investment-Grade Corporates | ~5.5% |
U.S. Aggregate | ~4.8% |
U.S. Treasuries | ~4.5% |
U.S. Municipals (tax-equivalent) | ~6.5% |
Vanguard points out that 3-month T-bill yields have been falling alongside the federal funds rate, while intermediate bond yields have held up better.
Municipal Bonds: A Steep Curve
One of the more notable observations in the report relates to municipal bonds. Vanguard highlights that the AAA muni yield curve is historically steep beyond the 10-year mark. At year-end, there was only 9 basis points of yield difference between 3-month and 10-year munis. But between 10-year and 20-year maturities, the pickup was 118 basis points, which they describe as the greatest in the past decade.
Their tax-equivalent yield analysis (assuming a 40.8% combined federal tax bracket) shows the advantage over the taxable aggregate index by maturity:
Maturity | Tax-Equivalent Yield Advantage |
|---|---|
1-5 years | 0.80% |
5-10 years | 0.68% |
10-15 years | 0.86% |
15-20 years | 1.87% |
20-25 years | 2.29% |
25-30 years | 2.46% |
Vanguard's muni team notes they are finding the best value in longer maturities where this yield pickup is most pronounced.
Credit and Fundamentals
On credit quality, the report states that municipal credit spreads are around their 40th percentile historically, which Vanguard considers attractive relative to investment-grade corporates (which are trading near all-time tight spreads). They cite strong state tax revenues, increasing rainy day fund projections, and a 10-year cumulative default rate for investment-grade munis that remains below 4% of the corporate bond default rate.
For taxable bonds, Vanguard indicates they favor banks over industrials in investment-grade credit, and they remain cautious on broad high-yield exposure, preferring security selection at current spread levels.
Vanguard's Positioning
The report summarizes their current stance as:
Neutral on overall U.S. duration
Positioned for yield curve steepening
Overweight select credit sectors
Favoring longer maturities in municipal bonds
They acknowledge duration risk cuts both ways, but see limited scope for Fed rate hikes in 2026 and view recession risks as more likely than an inflation resurgence.
INCOME BUILDING
Cash Rates
Government Money Market Funds (7-Day Yields)
SNVXX (Schwab Government Money Fund - Investor Shares): 3.40%
SPAXX (Fidelity Government Money Market Fund): 3.33%
TTTXX (BlackRock Liquidity Funds: Treasury Trust - Institutional Class): 3.54%
VMFXX (Federal Money Market Fund): 3.62%
Brokered CD Rates (6-Month Rate)
Charles Schwab: 3.79%
E*Trade: —
Fidelity: 3.75%
Merrill Edge and Merrill Lynch: —
Vanguard: 3.80%
ETFs (30-Day Yields)
SGOV (iShares 0-3 Month Treasury Bond ETF): 3.58%
BIL (SPDR Bloomberg 1-3 Month T-Bill ETF): 3.48%
USFR (WisdomTree Floating Rate Treasury Fund): 3.57%
TFLO (iShares Treasury Floating Rate Bond ETF): 3.57%
DEALS AND BONUSES
Costco Uber Gift Cards: $100 Value for $79.99 (20% Discount)
Offer Details
Main promotion: Purchase $100 worth of Uber/Uber Eats gift cards for $79.99 (20% savings)
Included: Two $50 eGift cards delivered via email
Delivery timing: Normally within 2 hours to specified email address
Eligibility: Costco membership required
Purchase limits:
Limit of 1 transaction per membership
Maximum of 2 units (sets) per membership every 14 days
Item is non-refundable
Cannot be redeemed for cash, refunded, or returned (except where required by law)
Redemption details:
Valid for Uber rides and Uber Eats orders
Redeemable via Uber or Uber Eats app within U.S. cities where services are available
Funds do not expire
May require secondary payment method to use with app
Not redeemable outside the U.S.
Issued by The Bancorp Bank, N.A.
Our Thoughts
At 20% off, this represents solid value for frequent Uber or Uber Eats users, particularly since the funds never expire. The 14-day purchase restriction limits stockpiling but allows you to buy up to $200 in value ($160 cost) during the promotional period if you make two separate transactions. The non-refundable nature means you should only purchase if you're confident you'll use the credit; though with no expiration, there's minimal urgency risk. Consider your typical monthly Uber/Uber Eats spend to determine if $100-$200 in prepaid credit makes sense, and note that you may need a backup payment method on file to complete transactions.
Picture of the Week
