Bond Markets Digest New Policies

MIKE TOWNSEND: It was pretty easy to be a stock market investor the last couple of years. In 2023, the S&P 500^® was up more than 24% for the year. In 2024, it finished the year up more than 23%.

But 2025 has been much more of a rollercoaster. Things started out well—on February 19, the S&P 500 hit an all-time high, up more than 4% since the beginning of the year. 

Since then, the market has been confused by the barrage of initiatives coming out of Washington. There are on-again, off-again, on-again tariff policies. A full-blown global trade war could be coming. There's an aggressive effort to reduce the size of the federal workforce, some of which is now tied up in the courts. The Department of Government Efficiency is leading the charge on dramatic federal spending cuts and is trying to shutter entire federal agencies. Major tax and spending legislation is inching its way forward in Congress. Even the Federal Reserve admits being uncertain about how it all will affect the economy.

And the equity markets have not taken it well. Since that record high on February 19, the S&P 500 tumbled more than 11% by mid-March. Over the last two weeks, it's recovered much of that, but still stood down about 2% for the year as of March 24.

Meanwhile, exchange-traded funds that track the Bloomberg Aggregate Bond Index are up about 2% for the year, and that's provided downside protection amidst a volatile stock market. 

It's a reminder of just how important a role bonds can play in a portfolio. Investors who may not have paid much attention to the bond portion of their portfolio over the last couple of years are suddenly quite a bit more interested. So what should they be looking for?

Welcome to WashingtonWise, a podcast for investors from Charles Schwab. I'm your host, Mike Townsend, and on this show, our goal is to cut through the noise and confusion of the nation's capital and help investors figure out what's really worth paying attention to. 

In just a few minutes, I'll be joined by Kathy Jones, chief fixed income strategist here at Charles Schwab, for a great discussion about how tariffs and other policy developments are affecting the fixed income markets. We'll also talk about the dollar, the tough task facing the Federal Reserve, and why the Trump administration is focused less on the fed funds rate and more on the 10-year Treasury. I think you'll really enjoy my conversation with Kathy. 

But I want to begin with three things I'm watching in Washington right now.

First, Congress managed to avoid a government shutdown earlier this month, passing a measure that ensures the government is funded through the end of this fiscal year, on September 30. The heavy lifting was done in the House of Representatives, where Speaker Mike Johnson of Louisiana was able to unite his fractious caucus behind the bill, with some significant behind-the-scenes arm-twisting from President Trump. The bill was approved in the House on a 217-213 vote, with just one Republican voting no and one Democrat voting yes. It includes a small increase of about $6 billion in defense funding and reduces non-defense spending by about $13 billion. But for the most part, it funds all federal agencies and programs at the same rate as last year—though of course the Department of Government Efficiency, DOGE, is aggressively cutting spending that was allocated by Congress. 

The unity among House Republicans on the funding bill, which is something Washington has not seen much of in the past few years, seemed to catch Senate Democrats off guard, and it put them in an impossible position. Senate Republicans needed at least seven Democrats to join them to get to the 60-vote supermajority needed to end a filibuster. Faced with the prospect of being held responsible for shutting down the government, Senate Minority Leader Chuck Schumer said he would support keeping the government open. He and nine other Democrats provided the necessary votes in the critical procedural motion to overcome the filibuster. The bill itself was then approved by a 54-46 margin. Democrats, particularly House Democrats, are furious with Schumer, arguing that he should stand up to President Trump more aggressively. Some have called on Schumer to resign. Democrats seem to be in total disarray, struggling to find their voice as the opposition party. 

On the other side of that is a surprisingly unified Republican party. I am among a lot of people in Washington who have been underestimating the ability of the Republicans to stay together on big issues. Republicans, particularly in the House of Representatives, have been incredibly dysfunctional over the last few years. But there is one big difference this year: President Donald Trump. He is threatening to support primary candidates against any Republican who doesn't back him or his positions—and it's working. So far in 2025, there have been three major examples of how Trump's presence has clearly been the deciding factor: the confirmation of so many of his controversial Cabinet nominees in the Senate, the House vote in February for the blueprint for the "one big, beautiful bill" on taxes and spending, and now the vote to keep the government funded. 

Can that unity last? Well, that brings me to my second thing I'm watching in Washington. After a week-long recess for both the House and Senate, lawmakers returned to town this week, and Republicans are trying to bridge the gap between the House and Senate on the tax-and-spending legislation that really is the heart of the president's policy agenda. Both chambers have passed their version of a "budget resolution," the broad blueprint that is the first step in the process toward a major tax bill. But those versions are very different—the House framework calls for $4.5 trillion in tax cuts and at least $1.5 trillion in spending cuts, along with a $4 trillion increase in the debt ceiling—that's the so-called "one big, beautiful bill." The Senate version totals just $340 billion and focuses only on border, energy, and defense policy, with a plan to do the much larger tax bill later in the year. 

House and Senate Republican leaders have been huddling this week to try to move the Senate toward the House plan. Both chambers have to pass an identical budget resolution in order to start the process of filling in the details of every specific tax provision and every spending cut. The goal is to have that framework approved by Easter. That timeframe sounds ambitious to me, but as I've said, I've been underestimating the Republicans for the past two months, so we'll see.

I still think the one big, beautiful bill is going to be very difficult when Republicans start the process of filling in the details. But after what's happened on Capitol Hill over the first two months of the Trump administration, I think the likelihood that Republicans can get a multi-trillion dollar tax and spending bill to the president's desk by midsummer have gone way up. 

Third, Paul Atkins, the president's nominee to be the chair of the Securities and Exchange Commission, has his confirmation hearing before the Senate Banking Committee this week. Atkins is well known in Washington, having served as an SEC commissioner for six years during the George W. Bush administration. He founded a successful financial consulting firm in Washington that he's run since his first tour of the SEC ended in 2008. Barring an unexpected development, he's likely to be confirmed by the full Senate without too much trouble, probably sometime in April. 

Atkins is poised to head an agency that, like so many agencies in Washington right now, is experiencing profound upheaval. News reports indicate that between 600 and 750 employees recently accepted a buyout offer to leave the agency—that's about 15% of the entire SEC workforce. The departures reportedly include numerous senior staff members in the Enforcement division and other key departments at the chief regulatory agency for the capital markets. In a trend that is being seen across the federal government, decades of experience, expertise, and institutional knowledge is walking out the door.

At the same time, Acting SEC Chair Mark Uyeda has not been just keeping the seat warm for the arrival of Atkins. Instead, he's been aggressive, dropping nearly a dozen cases that the previous chair, Gary Gensler, had brought against cryptocurrency-related companies. He also declared meme coins are not bound by security laws, delayed the effective dates of several new rules, made it easier for companies to reject shareholder proposals, ended the agency's defense of a rule requiring companies to report more about the risks they face from climate change, and announced plans to reduce and possibly eliminate some of the agency's regional offices. 

Atkins is a long-time proponent of a lighter regulatory touch at the SEC, preferring to let the market sort things out as much as possible. He wants to reduce the burdens on companies going public. And he's also expected to play a prominent role in the administration's development of a regulatory framework for cryptocurrency. 

The SEC is undergoing seismic changes in a very short period of time. It's an agency that most investors are aware of in the background, but don't pay much attention to. While an easing of regulations is likely good for companies, the brain drain at the agency has some concerned that the risk of a problem in the markets has ticked up a bit. So I'll be keeping a close eye on the SEC as Atkins comes on board and oversees more changes.

On my deeper dive last episode, I talked with my colleague Kevin Gordon about how the equities markets are reacting to the barrage of policy developments coming out of Washington. This week, I want to focus on the bond market. Tariffs, the downsizing of the federal workforce, reductions in federal grants and funding, declining relations with other nations, all of this and more has kept fixed income investors guessing just as much as stock traders. To help me make sense of the bond market right now, I'm pleased to welcome back to the podcast Kathy Jones, chief fixed income strategist here at Charles Schwab. She's also the co-host with our colleague Liz Ann Sonders of our sister podcast On Investing. 

Kathy, I know how crazy your schedule has been these days, so I'm really grateful that you could make some time to talk to me today. 

KATHY JONES: It's always a pleasure to be here, Mike.

MIKE: Well, Kathy, let's start with last week's Fed meeting, where, as expected, the FOMC left the fed funds rate unchanged for the second meeting in a row. My favorite part of the meeting, though, came in the statement that they released, which said, "Uncertainty around the economic outlook has increased." That's perhaps the driest, most understated assessment of the current state of affairs that I can possibly imagine, though I certainly won't disagree with the premise. And I'm betting that uncertainty will be a recurring theme in today's conversation. 

A big factor driving that uncertainty, of course, is tariffs, which seem to change on an almost daily basis, and they're making it especially difficult for the Fed to figure out how best to achieve its dual mandate of balancing maximum employment with price stability, not at all an easy thing these days. As tariffs keep piling on, businesses generally pass on that extra cost to consumers via higher prices, and that can bring on inflation concerns. And that's a big problem for the Fed when it comes to price stability, something Powell addressed in his remarks after the last meeting.

KATHY: Well, you're really right, Mike. The Fed is tasked with maintaining price stability and full employment, and those aren't easy goals to attain under the best of circumstances, but with the current set of policies, it's really difficult. Powell cited three sets of policies that the Fed is watching—tariffs, fiscal policy, and immigration limits. 

Now, tariffs, which you brought up, tend to push up prices because they are paid by the companies importing the goods into the U.S., and those companies will generally pass along as much of that cost as possible. If it's a one-off tariff, then it may be a one-time price increase that is easily absorbed without changing the direction of overall inflation. But if there are a series of tariffs rolling out over an extended period of time, then it can become a real inflation driver because it means continued price increases. For the Fed, the lack of clarity around which goods will face tariffs, by how much, and when makes it hard to evaluate what the lasting impact will be. With the story changing day to day, it's nearly impossible for the Fed to get a grip on how much inflation to build into its forecast. And meanwhile, tariffs can also have a negative impact on economic growth because if prices rise too much, demand falls. Also, there can be counter tariffs, as we've seen, that lead to less demand for U.S. exports. So tariffs can raise inflation and slow growth, exactly counter to what the Fed is trying to achieve. 

And you can see the result in the Fed's projections. In the most recently updated Summary of Economic Projections, the growth projections were revised lower for the next two years, while inflation projections were revised up. The Fed now expects GDP growth to be 1.7% and 1.8% over the next couple of years, down from 2% or higher in their previous set of projections, and considerably slower than the 3% average of the last three years from 2022 through 2024. Meanwhile, it upgraded its inflation expectations to 2.8% from 2.5% in the previous estimate. These are just projections based on current information, and as Powell said, no one has a lot of confidence in their estimates, but the direction of the travel isn't great, slower economic growth and higher inflation. 

Now, we tend to agree with this outlook, at least based on what we know right now, but, you know, there's an old saying that no one wins a trade war. And I have tried to find an example where widespread use of tariffs produce positive economic results, and I can't find one. Usually, they're used to protect a domestic industry facing competition, or perhaps for national security reasons, but in general, there isn't much evidence to suggest that tariffs have a positive outcome in the economy. 

MIKE: Well, we'll certainly get a continued test of that with a new set of tariffs set to come online in just a couple of weeks. 

But Kathy, the media really seems to focus a lot on inflation risk. I get that. It's sort of what average people, average readers, average consumers of the news, that's what they're thinking about, prices on the shelves. But it feels like the Fed is more worried about the slowing economic growth. My concern is that we may be starting a cycle where consumers slow their spending because prices are creeping up, or because the market is down, or just because they're worried about so much going on—there's just too much uncertainty—and then we start to see job losses in the private sector, and we're in a bit of a spiral from there. We're already seeing job losses at the federal level, which haven't really showed up in the data just yet, partly because all those federal employee layoffs are reported differently than private sector job losses, and there will be more knock-on effects as federal contracts are canceled, grants are rescinded, and private sector layoffs start. Consumer sentiment is way down. The Wall Street Journal recently reported that spending is slowing across all income levels. Wealthier people are making fewer large purchases, while lower-income people are skimping on essentials. And all of that starts to sound like a recession to a lot of people. Powell downplayed the risk of a recession. The bond market is often a barometer of such things. So what is it telling us? How are you seeing recession risk right now, or is it something to worry about later this year? 

KATHY: I agree that the Fed is probably more worried about the potential for an economic slowdown than a real acceleration in inflation. And as you noted, sentiment indicators are already weak, and they are weakening. But current activity is holding up reasonably well, largely because the unemployment rate is still fairly low. Nonetheless, there are risks to economic growth that we are monitoring, and the labor market is really important. Job growth is still positive, but the labor market just isn't very dynamic these days. The unemployment rate has stayed low because there isn't a lot of firing, but there also isn't much hiring. And if businesses are standing on the sidelines due to uncertainty about the economic outlook and policies, then they aren't going to be inclined to hire or invest. And eventually that leads to slower growth because the economy is meant to be dynamic, not static. But if you don't know what the policy will be in six months to a year, how do you plan hiring? How do you plan investment? How do you estimate what materials you'll need when you don't have insight into how demand is going to hold up? All these are concerns that businesses have right now. And the risk is that if things slow down to a stall speed, it wouldn't take much to tip toward a recession. 

Now, that being said, we do monitor recession indicators, and right now they're not signaling an imminent risk. There are a handful of models that are out there publicly that we also watch. One is from the Federal Reserve, and one is from Bloomberg using their forecast data. And both have seen a spike in recession probability, but then a decline in that probability in recent months. But currently, right now, they're both showing about a 25 to 28% chance of recession in the next 12 months. That's elevated, but not really high. So we're on recession watch, but not warning. 

MIKE: Well, we'll definitely stay on the watch, particularly as that next round of tariffs is set to go into effect. 

Well, Kathy, you did a fantastic primer recently on Financial Decoder, another of our sister podcasts here at Schwab, and I think for many investors there's always confusion about yield. So can you remind us how to think about yield? 

KATHY: Yeah, yield is the interest rate received on an investment. In the bond market, it's represented by the amount you earn in interest on a bond you own. So we often talk about yields in the context of the Treasury market since that's the largest bond market, and U.S. Treasuries are considered risk-free. So as a result, Treasury yields form the basis of comparison for many other investments. So for example, if you can get 4.5% in a five-year Treasury note without credit risk, you have to consider the yield other investments provide relative to that benchmark. 

Now, the yield curve is something we also talk about, and that currently is upward sloping, meaning yields rise as the maturity of the bonds lengthen. And when we look at short-term T-bill yields compared to intermediate or long-term yields, there is a gap of anywhere from about 20 to 35 basis points currently. A commonly watched benchmark is the yield spread between two- and 10-year notes. That difference is roughly around 28 basis points. However, yields across the Treasury curve for all maturities are currently at or below the fed funds rate. Now, the Fed targets the fed funds rate, and that's the interest rate that banks charge each other for overnight loans, very short-term loans, and that's in a range of 4.25 to 4.5%, average of about 4.38. That's higher than the rate on all other Treasury securities. It's one signal that the Fed is running a relatively tight monetary policy. 

MIKE: You know, it's interesting, the Trump administration, particularly Treasury Secretary Scott Bessent, has been very explicit in saying that the administration cares more about the 10-year Treasury yield as a bellwether than the fed funds rate, and that the administration will be working to bring that 10-year yield down, the reasoning being that mortgage rates and car loans and business loans are based off of the 10-year Treasuries, so that would be a boost for borrowers. Well, it has come down, which can sound like good news for borrowers, but the bad news is the reason it has come down is offsetting that lower yield. 

KATHY: You're right, Mike. Treasury Secretary Bessent is focused on 10-year yields, I think, for two reasons, as far as I can tell. 

The first is that the interest rate on home mortgages is tied to 10-year Treasury yields. And since the housing market is still moribund due to higher mortgage rates, lower 10-year yields could help give it a boost and give the overall economy a boost. 

Now, the second reason is that he's expressed a desire to refinance the U.S. debt at lower rates for longer maturities. The average interest rate on U.S. debt currently is around 3.34%. Now, that's up from 2.7% in 2020 when COVID hit. The rise in yields is causing annual interest payments on the debt to be larger than spending on defense. Since the administration wants to extend tax cuts, which would be cutting revenue and increasing the deficit, all else being equal, lower 10-year yields would help provide space for that rise in the deficit. And he's talked about refinancing the debt to longer-term maturities, but obviously we need to see lower yields to do that. 

Now, as for the recent action in 10-year Treasuries, yields rose right after the election, as the market focused on the potential for pro-growth policies, like tax cuts and deregulation. Ten-year yields hit as high as 4.8% in January, but then they've fallen back again on signs of slower economic growth. So since that peak was hit, consumer spending has been softer, job growth has slowed down, and manufacturing activity has dropped. Now, some of this has to do with the sequence that the administration is rolling out its policies. Tariffs are coming first, which are generally negative for growth, and that's showing up in the numbers, especially business sentiment numbers. And as you know, Mike, the fiscal policy changes, such as tax cuts, may have to wait for a while, and that raises the risk of more softening in the economy in the meantime. It's really been a lot of push-pull between fears of inflation and fears of slower growth, and we're seeing that reflected in the Treasury market. 

MIKE: Yeah, Kathy, I agree that the fiscal policy is going to take longer, probably mid-summer or even beyond that before that gets resolved. And it sounds like the administration's uncertain tariff policy, at the moment, not helping their plan for the 10-year Treasury. 

Well, I want to shift gears because I know you get asked about the dollar all the time, and particularly about whether there's any concern that the dollar could lose its status as the world's reserve currency. I get this question almost every time I speak to investors, and I tend to, frankly, be sort of dismissive of it. But is this something to be concerned about? 

KATHY: Well, you're right, Mike, there are always concerns about whether the dollar will lose its status as the world's reserve currency. You know, it's become a particular concern due to the potential for a trade war, since it does put the U.S. at odds with a lot of trading partners that tend to hold a lot of U.S. dollars. So for example, China and Japan are the two largest holders of U.S. dollars outside the U.S. And when countries run a trade surplus with the U.S., they end up with a lot of excess dollars, and usually put them into Treasuries for safety and liquidity. So in theory, they could sell those Treasuries as a counter to U.S. policy, and that would drive up interest rates, drive down the dollar, and could tip the economy into recession. However, there isn't much evidence that that's happening. U.S. dollar reserves still represent about 60% of reserve holdings among central banks—that's been the case for most of the past 20 years. And the dollar is still used in more than 80% of global transactions. Now, it has gone down in value in recent weeks, but from a very high level, and mostly, I think, a reflection of softening and economic growth prospects, compared to the lift coming out of Europe, say, from their fiscal expansion plans. So finally, I would say there really isn't an apparent alternative to the dollar. Because the U.S. Treasury market is the largest and most liquid bond market in the world, it's really suited to serve the purpose of holding excess reserves. So there's really no other market and no other currency that comes close. 

MIKE: You know, one other interesting development is that the administration recently announced that it would launch a Strategic Bitcoin Reserve, as well as a national digital asset stockpile that would include other cryptocurrencies. So does that undermine the dollar standing as the world's reserve currency? 

KATHY: Well, I'm concerned that it could undermine the dollar's role. And frankly, if you have the world's reserve currency, why do you need another currency to hold in reserve? Why provide an alternative at all, especially one that has huge volatility and really hasn't proven its use case outside of speculation and maybe criminal activity? We have over 800 billion in gold reserves, and that's a pretty substantial backstop for the U.S. in supporting the dollar. So my concern is that it would undermine confidence in the dollar and maybe reduce demand for the dollar and, in turn, Treasuries, and that would risk sending interest rates higher. 

But Mike, I want to make a distinction because this often gets confused, between cryptocurrencies and a digital dollar. Digital dollars, managed by the Federal Reserve, and just like physical dollars, they're backed by the Federal Reserve and worth the same as physical dollars. And that's the biggest difference with cryptocurrencies, which are decentralized assets and have different value from traditional currencies. It would be really easy to have a digital dollar, and the Treasury and the Fed have already drawn up plans for it, with the goal of having a currency that is more liquid and secure and more suited to the changing banking system. 

MIKE: Yeah, I would just add, Kathy, that while the Fed has done extensive study of a digital dollar, Chair Jerry Powell has been clear that he won't launch one without the support of Congress, and frankly, I don't think that support is there right now. So we'll see how that all plays out. 

OK. Well, let's get to what fixed income investors should be thinking about right now. I'm really interested in your outlook for the bond market and where there may be opportunities for investors. We've been talking about policy uncertainties, and it seems that two parts of the bond market could be significantly affected by policy. One is the corporate bond market, and the other is the municipal bond market. 

So let's start with corporate bonds. We've talked about the uncertainty for companies, how tariffs and other policy initiatives are making it hard to plan. Plus, the Fed is keeping interest rates elevated for now. That feels like a bad combination for the corporate bond investor. How is all that factoring into the value of corporate bonds and the yields they're offering right now? 

KATHY: Well, Mike, actually, corporate bonds are holding up pretty well, you know, at least those with higher credit ratings. So the investment-grade part of the market, those with ratings from AAA down to BBB, have not been subject to much selling. Yields relative to Treasuries have widened a little bit, but they're still below the long-term average. So the index we follow, the Bloomberg U.S. Corporate Bond Index, has a yield of about 5.2% currently, with an average duration of 6.8 years. That yield spread is about 50 basis points over a seven-year Treasury bond, which would be comparable maturity and duration. With corporate profits still strong, and most larger companies still have very solid balance sheets, so those factors are still supportive for this segment of the bond market. 

It's a bit different in the high-yield bond market, which is also part of the corporate bond market. Yield spreads have widened, albeit from very low levels. High-yield bonds are much more sensitive to changes in the equity market. They're highly correlated with equities. They're generally issued by smaller companies that typically have more debt, and they are susceptible to the ups and downs of the economy because their profit margins tend to be lower. So we'd be more cautious when buying lower-credit-quality bonds in this environment. 

MIKE: As we've talked about, Washington is very focused on reducing federal spending in all sorts of ways. Federal employee layoffs have been in the headlines, but for states and localities, it may be other reductions in federal spending that start to directly impact them. I'm thinking about federal programs that states and local communities benefit from or non-profits that use federal grants to provide services in the community. Given the uncertainty, does the outlook for municipal bonds change? 

KATHY: Well, the municipal bond market writ large is still in very good shape, but these are factors that will have some impact on some state and local governments. So some have been using pandemic funding for regular ongoing activities, and as those funds dry up, they'll need to probably reduce their budgets or find another source of revenue. So that's something we would be watching. And it will likely affect the hiring of teachers and other education workers. And as you mentioned, states also are losing funding for things like Medicaid, which affects the hiring of healthcare workers, and the services they provide. So the states that are likely to be hit the hardest from that would be generally in the south, Alabama, Mississippi, and Arkansas. So it's something that, really, we're monitoring, but it doesn't look like it's a problem for the entire municipal bond market. 

MIKE: What about school bonds, hospital bonds, other types of more specific bonds? 

KATHY: Well, when it comes to school bonds, it always depends on the community. In a well-to-do community with strong property values and low unemployment, the school bonds are likely to be fine, but in other areas, it can be a problem. We look very closely at bonds issued by, say, smaller private colleges. Many have been experiencing financial difficulties due to falling enrollments. Hospital bonds are also worth investigating carefully, due to the potential for the drop in funding that you mentioned. It's very much a case-by-case situation. 

MIKE: How about international bonds? International equity markets look appealing, and they've been significantly outperforming the U.S. markets so far this year. So are there opportunities for bond investors looking beyond our borders, or are tariffs causing too much uncertainty in this space as well? 

KATHY: Well, international developed-market bonds have been performing well year-to-date. The main reasons are that some central banks abroad have lowered interest rates, and that's boosted the price of the bonds, but also the dollar has dropped, which makes the total return to an investor in foreign bonds higher, all else being equal. The drop in the dollar has largely offset the difference in interest rates between the U.S. and other countries. So going forward, international bonds look like they can provide diversification from U.S. holdings, but they do tend to be more volatile. We usually suggest keeping the allocation of any of the non-core segments of the market, like international bonds, emerging markets, or high-yield to no more than 20% of a portfolio. 

MIKE: Well, Kathy, this has been great. We've hit on corporate bonds, municipal bonds, international bonds. Really appreciate your perspective there. 

Bonds, of course, have been thought of as the much less exciting, but still very important part of a well-diversified portfolio. They provide stability and income, generally with a lower risk profile than equities. But with back-to-back years of gains of more than 20% in the S&P 500, I think a lot of investors weren't spending a lot of time worrying about the bond side of their portfolio. In 2025, of course, the equity markets remain down for the year, and given all the unpredictability that may lie ahead, particularly with another big round of tariffs going into effect in just a couple of weeks, many investors are reacquainting themselves with the bonds in their portfolio as they seek a little more stability. So what's your overall advice to those looking to expand the fixed income part of their portfolio right now? 

KATHY: Well, Mike, given all the uncertainties and potential for volatility, we're holding to a relatively cautious approach. We like to say we're hugging the benchmark. In other words, we look at the Bloomberg Aggregate Bond Index as a benchmark, much as you would look at the Standard and Poor's 500 as a benchmark for returns in the stock market. Now, for the aggregate index, it's all investment-grade securities—Treasuries, high-credit-quality corporate bonds, etc. Now, the yield-to-worst—that is, the worst yield you can get on the bond, taking into account things like callability or prepayments, but not a default—is around 4.7%, and it has an average duration of about six years. That's kind of middle of the road stance, but we think that it makes sense as a starting point for most investors. We really don't have enough insight into how policy will play out over the course of the year, and therefore, we just don't want to take a lot of excess risk.

MIKE: Yeah, that seems to be the message everywhere. There's a lot of uncertainty and a lot of policies that are going to have to play out in the coming weeks and months that we'll have to watch. 

Well, Kathy, a great conversation, as always. Really appreciate you joining me today. 

KATHY: Thanks for having me, Mike.

MIKE: That's Kathy Jones, Schwab's chief fixed income strategist. You can find her on X, formerly Twitter, @KathyJones. And be sure to head on over to the On Investing podcast, where each Friday, Kathy and Schwab's chief investment strategist, Liz Ann Sonders, break down what's going on in the markets. 

That's all for this week's episode of WashingtonWise. We'll be back with a new episode in two weeks. 

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For important disclosures, see the show notes or schwab.com/WashingtonWise, where you can also find a transcript. 

I'm Mike Townsend, and this has been WashingtonWise, a podcast for investors. Wherever you are, stay safe, stay healthy, and keep investing wisely.