Aim for the Middle of the Curve

THE interest rate picture is clearing up, and so is my judgment as to where to find the most reward for the least risk.

- JEFFREY R. KOSNETT

It is in the middle, the so-called belly of the yield curve, where maturities of three to seven years offer a sweet combination of yield, safety and total return.

My reasoning is simple and has much to do with the downsides of the alternatives. Shorter-term money rates from banks, as well as money market and ultra-short funds, are still heading lower, with the Federal Reserve sounding committed to another cut or two. Long-term Treasury and other bond yields are not finished climbing (nicking prices and the net asset values of mutual and exchange-traded funds), even after spiking from September to November on a parade of inflation reports and economic growth indicators that make bond traders nervous.