Mideast Horrors Remind Advisors of Clients’ Needs

The elephant in the room deserves our attention: Now is a difficult time to focus on investments.  

No matter how immersed you are in the industry, as an advisor, ETF analyst, publisher, media member or product provider, the attack on Israel by Hamas militants is a reminder of the role of investing in the lives of every financial advisor’s client. 

For each advisory client, that role is a means to an end, to use their accumulated wealth to get what they want out of life. Which means that at the core of the advisory business, and the investment segment, is people. We are reminded of that this week, as people make decisions that affect so many lives in many ways. 

War’s Costs Remind Advisors to Focus on Clients' Other Needs 

In addition to war-related headlines, the financial markets are entering a critical information period, which started with Wednesday’s stronger-than-expected Producer Price Index, and continued with the release of minutes from the last Fed meeting. Wednesday also brought a 10-year U.S. Treasury auction, which had to please the government in one respect.  

Last week, the current 10-year bond traded at a yield of 4.85%, but shortly before Wednesday’s auction, it traded down near 4.55%. That means the interest payment owed to bond holders by the government will be less than it would have been if the auction had been held last week.  

Today's Consumer Price Index was a bit higher than expected, which is not likely to be market-friendly in the near term. That’s because the longer inflation stays elevated, the more it joins with the lagging impact of the Fed’s 11 rate hikes to soften the economy more noticeably. 

Friday the 13th Data

Friday the 13th is highlighted by a “Wolverine” barrage, a.k.a. data from the University of Michigan, which includes inflation and consumer expectations and sentiment indicators. 

On the aforementioned issue of the rate the US government pays on 10-year bonds, as well as bonds across its debt schedule, the bottom line is that US Treasuries are the government’s borrowing mechanism. The U.S. is in a mighty debt hole, with more than $30 trillion owed. That won’t be paid off any time soon, so Uncle Sam wants to see rates plummet soon, so when existing low yield bonds from the “old days” mature, they are replaced by something lower than the current 4-5% yield levels. This is especially critical for bonds maturing 10 years and longer. 

That interest cost on debt will eventually be the largest US government expense. Longer term, it can reduce the attractiveness of US bonds to foreign and domestic buyers, at a time when two of the historically biggest buyers, Japan and China, are repatriating assets to help their own sliding economies. The point: it is a mess, and there is no clear direction on where rates go from here.  

ETFs for the Current Environment 

This is where advisors can help clients truly understand the importance of the bond market, and if/how it makes sense for them to allocate assets along the curve. It is all available in ETF form, from the well-known Vanguard Long-Term Treasury Index ETF (VGLT) and newcomer Global X 1-3 Month T-Bill ETF (CLIP), which invest in opposite ends of the yield curve, hyper-targeted exposure through ETFs like the $107 million iShares iBonds Dec 2029 Term Treasury ETF (IBTJ) which targets only bonds maturing six years from now.  

Markets are inanimate objects, analyzing them for clients is part of the job. That’s why, as the world continues to follow, process and understand this week’s historic events, there is a critical role for advisors to play, both as investment experts and as informal but concerned counselors, as their clients think about what author Richard Haas called “a world in disarray.”