Wow, Those Interest Rates

5%.

That's where the 10-year Treasury yield hit on September 14.

I've been in the "higher for longer" camp for some time. In fact, earlier this year I thought rates had a decent chance of moving higher. And where appropriate based on each client's goals and risk tolerance, we tried to manage that risk in bond portfolios by keeping duration shorter than traditional bond benchmarks. (Meaning we had a preference for shorter-dated bonds on average.)

That was before the war with Iran, disruption around the Strait of Hormuz and another surge in energy prices complicated the inflation picture.

Now oil, inflation, interest rates and geopolitics are colliding in ways that deserve our attention.

Rates are up. Oil has again traded above $100 per barrel. Inflation remains stubbornly above the Federal Reserve's target. And suddenly the market isn't debating how quickly the Fed will cut rates. It's debating whether the next move could be another increase.

That's quite a change.

President Trump has made clear that he wants dramatically lower interest rates. Treasury Secretary Scott Bessent has also taken steps aimed at easing pressure in longer-term Treasury markets.

But here's the thing:

Washington can ask for lower rates. Markets don't have to listen.

The Federal Reserve controls an important short-term interest rate. It does not simply dictate the yield investors demand to lend the United States money for 10, 20 or 30 years.

Those investors get a vote too.

And when investors become more concerned about inflation, energy prices, fiscal deficits, government borrowing or the future purchasing power of their money, they may demand more interest to lend it.

That makes the next chapter particularly interesting for new Fed Chair Kevin Warsh.

The question isn't simply whether the Fed raises, cuts or holds rates at its next meeting. It's whether markets continue to believe the Fed will do what is necessary to control inflation—even when doing so is uncomfortable.

Credibility matters.

If markets begin demanding a larger premium for inflation or other risks, trying to force rates lower can have the opposite of the intended effect.

Higher Rates Aren't All Bad

Now, before this starts sounding like I'm complaining about higher rates, remember one of the things we do for a living.

We invest in bonds.

Bond investors lend money because they expect to get paid interest for doing it. Higher yields can mean more income and, at certain points, potentially more attractive opportunities.

So I'm not crying about 5% Treasury yields.

For clients who own bonds and have the capacity and appetite for additional interest-rate risk, changing yields may create opportunities worth evaluating.

That doesn't mean rates can't go higher. They certainly can.

It means the compensation available for taking certain risks has changed—and our job is to continually evaluate whether clients are being adequately compensated for the risks they take.

That's investing.

So What Now?

We don't know where rates go next. Nobody does.

But the investment landscape has changed. Bond investors are being paid more to lend. Capital is becoming more expensive for homeowners, businesses and governments. And equity markets, at least so far, haven't given us the kind of broad dislocation that makes us particularly excited.

So we keep watching, evaluating and adjusting where appropriate.

Higher rates create risks. They also create opportunities. Our job is to distinguish between the two.

Dane Czaplicki, CFA®
CEO & CIO, Members' Wealth
Risk. Investments. Tax. Estate.

If changing interest rates, higher bond yields or today's investment landscape have you wondering whether your portfolio is positioned appropriately for your goals, let's talk. Every client's circumstances, risk tolerance and time horizon are different—and those differences matter.

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About the Author

Dane Czaplicki, CFA®

Dane Czaplicki is CEO of Members’ Wealth, a boutique wealth management firm that offers a comprehensive approach to serving individuals, families, business owners, and institutions. The firm’s goal is to preserve and grow its clients’ wealth to endure over time, while thoughtfully evolving its strategy to suit an ever-changing world. With over 20 years of wealth management experience, Dane and the Members' Wealth team thrive on bringing clarity and confidence to clients' unique situations. He believes everyone needs sound financial advice from someone whose interests are aligned with theirs, and is determined to put service before all else.

Dane received his MBA from The Wharton School of Business at the University of Pennsylvania and his bachelor’s degree from Bloomsburg University. Outside work, he enjoys spending time with his wife and kids, hiking and camping, reading, running, and playing with his dog. To learn more about Dane, connect with him on LinkedIn.

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