BlackRock's Jeff Rosenberg blogs "3 reasons why short-term bonds are finally looking attractive." He writes, "Short-term bonds are looking attractive again after years of near-zero yields. The Federal Reserve's rate increase this week only adds to the appeal. Markets are now pricing in two more hikes this year, in line with what the Fed signaled on Wednesday in its latest Summary of Economic Projections. That market participants have finally come to terms with the Federal Reserve's normalization plans is just one of the reasons short-term bonds are finally looking attractive again after years in the doldrums." Rosenberg continues, "We see short-term U.S. debt offering relatively compelling income, with limited downside risk, now that market participants have greater confidence in the Fed's planned normalization path. In most of the post-crisis normalization period, the bond market significantly discounted Fed expectations for the pace of normalization. The market has now caught up with the Fed's view, with rising short-term interest rates reflecting this greater confidence. Market participants previously had good reason to be skeptical. 2017 was the only year the Fed delivered on its promised pace of normalization. But current economic tailwinds -- tax cuts and plans for more government spending -- suggest the central bank is poised to extend that recent track record." Finally, he adds, "We see rising opportunities at the front end of the curve, where yields finally above inflation levels offer investors a viable alternative to cash. Higher yields favor short over long maturities in government debt. We like floating rate and inflation-linked securities as buffers against rising rates and inflation, and also see opportunities in 15-year mortgages."

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