How to juice the yield in your fixed income portfolio as Trump returns to the White House

With the election in the rear-view mirror and President-elect Donald Trump headed back to the White House, it could be a good time for income investors to revisit their portfolios. While any policies that could affect investments will take time to enact, the bond market has already responded to the coming change in leadership. The yield on the 10-year Treasury topped 4.4% on Wednesday, hitting its highest level since July during the session. On Thursday, yields were lower, with the 10-year Treasury at about 4.34%, down from nearly 4.43% as the Federal Reserve announced another quarter point rate cut. The tax cuts and tariffs floated by Trump has raised worries of a widening fiscal deficit, spurring Treasury yields higher as of late. Bond yields move inversely to their prices. "After the recent sharp increase in yields, we think that yields are higher than warranted, see positive returns for bonds ahead, and believe that investors with high cash balances should use currently elevated yields to 'lock in' yields for the year ahead," Mark Haefele, UBS global chief investment officer for wealth management, wrote in a note Wednesday. A buying opportunity in bonds Sinead Colton Grant, chief investment officer at BNY Wealth, believes that bond investors overreacted. They are concerned that government debt and deficit are going to rise, and that Trump's tariffs may cause inflation, she explained. The reality is much more nuanced, she said. "If you look at one of the biggest factors that encouraged Trump to be elected for a second time, it was inflation," Grant said. "So the last thing that the second Trump administration will do is introduce policies that are going to be significantly inflationary." She sees a yield of 4.5% as a key level for the 10-year Treasury. If it goes above that threshold, the yield could reach 4.75%, she said. US10Y YTD mountain U.S. 10-year Treasury "The biggest determinant of your long-term return is the yield," Grant said. "If you are focused on income, bonds start to look pretty attractive. They might even get a little bit more attractive between now and the end of the year." Wells Fargo Investment Institute also thinks it's a good point to lock in some yield at the same time the Fed is lowering short-term interest rates. "If you haven't already, at least think about dollar-cost averaging in, locking in some of your short-term cash, short-term fixed income into longer-term maturities," Brian Rehling, the firm's head of global fixed-income strategy, said in a conference call Wednesday after the close. However, certified financial planner Charles Failla is taking more of a wait-and-see approach. He will remain in relatively shorter duration and higher in quality. "We want to see how the new presidency with Trump is going to play out for probably another few months," said Failla, principal of Sovereign Financial Group, which has offices in Stamford, Conn. and New York City. If rates spike up, especially on the long end of the curve, then he would be interested in increasing duration. He also thinks there could be some interesting opportunities early next year in private credit . Munis While municipal bond yields don't move as quickly as Treasury yields, they are expected to follow, said BNY Wealth's Grant. She sees that as an opportunity for investors in higher tax brackets, especially those in high-tax states. Munis are free of federal tax and, if the investor lives in the state the bond was issued, exempt from state taxes. She specifically likes issues with a maturity of roughly 10 to 15 years. "It's a very fragmented market, so security selection becomes very important," Grant said. UBS is also among the firms that see opportunity in muni bonds, particularly those rated AAA. There was a strong supply heading into the election, but that is expected to slow. "Looking beyond the election, we believe the setup is constructive for strong year-end performance, given the combination of higher yields and our expectation of supply cooling following the election," senior fixed income strategist Sudip Mukherjee wrote in a Oct. 17 note. High-yield bonds Trump is expected to bring about a more business friendly environment, and with interest rates continuing to come down, that can make high-yield bonds attractive, Grant said. The bonds are rated BB+ or lower by Standard & Poor's, or Ba1 or lower by Moody's . They are generally considered riskier than investment grade. "If there is a fear that the economy is slowing and default risk is rising, the increase in default risk is offsetting the higher yield that you might get," Grant said. "But with a much more pro-business, more supportive of the economy administration, then that default risk goes down, which starts to make high yield look more attractive," she added.