This week we crossed the line from simple stock market selloff to complete financial market panic. Stocks kept dropping with even the usual bargain hunters staying away. The rush for cash started, which means even U.S. Treasury bonds were being sold. Surprising? Yes. Alarming? No. This initial stage of panic will pass. U.S. Treasuries remain the safest investment option in the world.
The bond selloff did mean that mortgage-backed bond prices also retreated from their recent peaks. I believe this is a temporary situation, as investors will not want to stay on the sidelines for long. Even today, we see some stabilization in the stock market, which is a good indication that the mad rush to cash may be abating. Still, I expect continued volatility, in equities and beyond, as investors react to stimulus packages and the further spread of the virus in the U.S.
All things considered, our government agency-backed mortgage bonds remain the most resilient investments. These are supported by real assets, with an agency guarantee for payment of principal and interest. They also continue to pay cash monthly, meaning we can transition to a larger cash position without having to liquidate any holdings during this historic volatility.
There may come a time, when the virus threat begins to wind down, that buying into this decimated stock market could make sense for some investors. If you’d like to discuss that option or anything else, please reach out.
This information is not intended to be used as the only basis for investment decisions, nor should it be construed as advice designed to meet your particular needs. You are advised to seek the advice of your financial adviser, legal or tax professional, prior to making any investment decision based on any specific information contained herein.
