Yields are popping. Here's how you can jump on the 'short-lived' opportunity, according to analysts

Published Thu, Oct 20 20228:50 PM EDT

Yields are rising again, and interest rate hikes look set to continue. Analysts say that means it's a good time for investors to put their cash in bonds or Treasurys — especially the ones with the shortest duration. BlackRock said in a note on Tuesday that it believes the U.S. Federal Reserve will continue to stabilize inflation in a "deliberate and determined fashion," and its war on inflation doesn't mean it will "induce a recession unnecessarily." "The pace of hiking priced by the market for the next 6 months strikes us as a bit overdone and we believe this creates opportunities in front-end government bonds and investment grade corporate debt," said BlackRock's Gargi Chaudhuri, head of iShares investment strategy for the Americas. "In addition to absolute yield levels that we have not seen in years, bonds may now offer more ballast against volatile equity positions — an added boon in case of recession," she added. Yields popped again on Wednesday , with the 10-year Treasury surging to its highest since July 2008 to 4.136. The 2-year Treasury also jumped to 4.55%. The 10-year was last at 4.176% on Thursday during Asia hours, and the 2-year was at 4.6%. In a note last week, Wells Fargo suggested that investors seize this small window of opportunity. "For investors, the significant increase in short-term yields has important implications and has provided short-term opportunities that we have not seen in over two decades," said Brian Rehling, head of global fixed income strategy. "Unfortunately, the nature of short-term maturities implies these opportunities may be relatively short-lived." What to buy BlackRock said it expects the Fed to maintain a "higher for longer" stance in interest rates, even in the face of recession risks. As markets approach "max pessimism in rates," BlackRock said it sees opportunities in these short-duration funds: iShares Short Treasury Bond ETF: It's comprised of bonds which mature in less than a year. iShares 0-5 Year TIPS Bond ETF: It has exposure to short-term U.S. Treasury Inflation-Protected Securities (TIPS). iShares 1-5 Year Investment Grade Corporate Bond ETF: It has exposure to U.S. corporate bonds with maturities between one to five years. "We also expect the Fed to be 'higher for longer', so we think opportunities extend further out the curve as well," said BlackRock's Chaudhuri. Overall, she said, the opportunities in short-duration bonds look best through to the end of the year. Earlier this week, Goldman Sachs also said it was overweight on cash , and likes more defensive real assets in the near term, such as TIPS. Wells Fargo said it was most positive on U.S. Short Term Taxable Fixed Income, adding it believes short-term rates may stay attractive over the next six months. "What is evident is that the Fed controls the direction of short-term rate movements," it said. "Short-term maturities with maturities in 6- to 12-months anticipate Fed rate moves." BlackRock's sample portfolio for U.S. Short Term Taxable Fixed Income on its website, dated Oct. 3, showed a mix of holdings. They comprise: A mix of Treasury notes with coupons of up to 3% and maturing between 2023 to 2026. Bonds of U.S. investment banks, tech firms and others with coupons of up to more than 4%, and maturing between 2023 to 2026.