donald trump <u+2019>s surprise victory in the presidential election has roiled the bond market in the days since, driving the yield on benchmark 10-year treasurys above 2% for the first time since the beginning of the year, and leaving some to wonder whether the long-running bond rally is over. market watchers expect the incoming administration<u+2019>s policies to drive up inflation, which would lead to higher interest rates, sending bond yields sharply higher and prices sharply lower. the yield on the 10-year u.s. treasury note settled at 2.118% thursday from 2.070% wednesday, after notching its biggest one-day jump in three years wednesday. the outlook among financial advisers is that while mr. trump<u+2019>s policies will likely bring opportunity in a year or more as their inflation-boosting effects play out, for now they<u+2019>re waiting and encouraging clients to maintain their short-duration bond portfolios. duration measures a bond<u+2019>s price sensitivity to fluctuations in interest rates. <u+201c>this is a very fluid situation still, both on the stock and bond side,<u+201d> says scott tiras, private wealth adviser with ameriprise financial in houston, whose practice oversees about $1 billion in assets. <u+201c>right now, it would be ill-advised to be too dramatic with any changes in portfolios.<u+201d> most of his clients are oil-company retirees or near-retirees with pensions who rely on their bond portfolios mostly for capital preservation, mr. tiras says. a typical client portfolio has about 40% or 45% in fixed income with an average duration of about three years and a yield of about 1.5% to 3%. <u+201c>rates can go up a whole lot more than they can go down at this point, so we are going to suggest keeping real durations limited,<u+201d> he says. mr. tiras said his firm expects that the federal reserve will raise rates in december, but for now he is waiting. while there is a risk that rates go up more than people expect, he says he doesn<u+2019>t see the 10-year treasury yield rising to 2.5% or 3% soon. steven macnamara, chief investment officer at wescott financial advisory group in philadelphia, says the firm has received more calls than usual from clients over the past two days with most asking about the overall construction of their portfolios. the firm, which has more than $2 billion in assets under management, has been expecting higher rates in the bond market for some time, but mr. macnamara now says he expects those rates will rise faster assuming mr. trump<u+2019>s policies go through. <u+2018> <u+2018>right now, it would be ill-advised to be too dramatic with any changes in portfolios.<u+2019> <u+2019> his firm invests in fixed-income mutual funds and exchange-traded funds, and has been keeping portfolio durations typically in the three-and-a-half to five-year range to play defense with the expectation that rates would rise, he says. the firm currently is looking at all areas of the bond market to seek the best risk-adjusted return opportunities, including floating-rate bonds, higher-quality corporate bonds and treasury inflation-protected securities, he says. <u+201c>we don<u+2019>t think the direction or the severity of this move is completely appreciated in the marketplace as yet,<u+201d> mr. macnamara says. rates could rise faster than expected, pushing bond prices lower than investors now expect, he says. for now, he<u+2019>s sitting back and watching to see the speed of the rise in rates, he says. with mr. trump<u+2019>s policies and the continued recovery of the economy, the bond market is likely to begin trying to police itself as opposed to waiting for the fed to raise rates, he says. meanwhile, at colony group in boston, chief investment officer brian katz says client concerns haven<u+2019>t been centered on rising rates and their bond portfolios. <u+201c>i think there are other concerns about the election before they<u+2019>re starting to worry about 10-year interest rates,<u+201d> he says. <u+201c>it wouldn<u+2019>t surprise me if by the end of the week or the beginning of next week, we<u+2019>ve started getting those questions [on the impact of rising rates] a little bit more.<u+201d> before the election, with signs of wage growth and promises of large infrastructure spending from both candidates, colony group, which manages $5.2 billion in assets, began looking at investments that would do well in a rising interest-rate and more inflationary environment, he says. those include floating-rate securities, which the firm now holds on a limited basis, and tips. but there will be a delay before some of mr. trump<u+2019>s policies will translate into higher inflation, mr. katz says, so the firm isn<u+2019>t making any big changes now. write to daisy maxey at daisy.maxey@wsj.com
advisers to clients: don<u+2019>t make big moves in your bond holdings<u+2014>yet - wsj
daisy maxey