The 10-year U.S. Treasury yield hit 5% on Monday, its highest level since October 2023, before pulling back to around 4.96%. The Federal Reserve is set to announce its rate decision on Wednesday, with the market pricing in 90% odds of a hike. Inflation remains above the Fed’s 2% target, with the consumer price index rising 3.4% year-over-year in August. Amid this volatility, experts advise avoiding long-term bonds and favoring short- to intermediate-term maturities, such as BBB-rated corporate bonds or bond funds with duration under six years. The Schwab 1-5 Year Corporate Bond ETF currently offers a 4.95% yield, while S&P 500 dividends have grown at an average of 5.7% annually over the past 60 years, providing inflation protection.
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