For many investors who have relied on the safety of cash and money market funds, offering 5% yields, the news was a sobering reminder that such returns won’t last. With another 75 basis points in cuts expected before the year’s end, those attractive yields on parked cash are set to dwindle, leaving advisors scrambling to preserve income for their clients. But this rate-cutting cycle is opening new doors—especially for bond-based strategies that can navigate a lowering yield environment.
Most client books are split between equities for capital growth and fixed income for stability and income generation. Advisors are tasked with balancing both growth and income-oriented portfolios for their clients. Harvest ETFs, long recognized for its Equity Income lineup, which marries growth potential with high monthly income from covered calls, saw a unique opportunity in September 2023.
Anticipating the market’s shifting dynamics, Harvest ETFs introduced the Harvest Premium Yield Treasury ETF (HPYT) to meet the growing demand for stability, high income, and tax efficiency. One year later, as the ETF marks its first anniversary on the TSX, HPYT continues to deliver.
Shifting from cash to bonds: Why U.S. treasuries now?
While equities may be riding high on the Fed’s latest rate cut, fixed income is where the longer-term story unfolds. U.S. Treasuries, particularly longer-dated bonds, are poised to benefit from the new downward rate trajectory.
Historically seen as a safe haven, U.S. Treasuries offer stability that is especially attractive during periods of uncertainty. But with rates now falling, the value of these bonds could rise, making them an attractive core holding for investors who are looking to take advantage of the interest rate change in their portfolios. However, HPYT still offers value outside of this scenario due to its ability to generate high monthly income through call option premiums. That high income, paid in a monthly cash distribution of $0.15 per unit, can offset a continued drawdown in US Treasury bond prices.
