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Bloomberg | July 9, 2026 | Authors: Enda Curran and Maya Prakash |

Federal Reserve Chairman Kevin Warsh announced the leadership of five task forces that will examine the central bank’s approach to key aspects of policy making, with an eye toward potentially enacting sweeping changes.

The leaders of the task forces include prominent academics, former central bankers and corporate executives who have been asked to look at the Fed’s communications strategy, $6.7 trillion balance sheet, use and reliance on existing data sources, productivity and jobs and inflation frameworks. Warsh, who became Fed chief in May, entered the job having called for “regime change” at the central bank and a shakeup of how it conducts policy.

“Each task force will carefully consider whether policymakers’ means and methods, analytical tools and policy approaches can be improved upon,” Warsh said in a statement on Thursday. “The goal is straightforward: to ensure the Fed is best positioned to achieve our objectives in this consequential time,” he said.

Warsh tapped several former policymakers for the task forces, including former Bank of England Governor Mervyn King, who led the UK’s central bank through the 2008-09 financial crisis, and former Brazil Central Bank President Arminio Fraga, who is noted for his defense of the country’s central-bank independence from political interference. Raghuram Rajan, former governor of the Reserve Bank of India who was noted for his early warnings ahead of the global financial crisis, will also co-lead one of the groups.

Other names include Karen Dynan of Harvard University, who previously held top roles at the Treasury Department during the Obama administration, and former Walmart Inc. Chief Executive Doug McMillon.

Joe Brusuelas, the chief economist at RSM US said the list of leaders will add experience to the task forces, though he cautioned they will face challenges, too. “It’s a very impressive list that’s been put forward by Chair Warsh that I’m confident will inform the discussion around the substantive topics,” Brusuelas said. “However, the Fed already has an army of Ph.D.s that had investigated these areas, so I’m not exactly convinced that this is going to shed much light into how we understand productivity and AI,” he added, referring to one of the task forces.

The groups are expected to share their conclusions by year-end and their outside experts will be supported by Fed staff, Warsh said in June when announcing the task forces.

Warsh on Thursday called the task force leaders “the best minds from a range of disciplines.” They are:

Communications
• Peter R. Fisher, professor of practice, Foster School of Business, University of Washington
• Arminio Fraga, founder and chairman, Gávea Investimentos; former president, Central Bank of Brazil
• Mervyn King, former governor, Bank of England

Balance Sheet Policy
• Karen Dynan, professor of economics, Harvard University
• Raghuram Rajan, professor of finance, University of Chicago Booth School of Business; former governor, Reserve Bank of India
• Jeremy Stein, professor of economics, Harvard University; former governor, Federal Reserve Board

Data
• Raj Chetty, professor of economics, Harvard University
• Doug McMillon, former president and CEO, Walmart Inc.
• Kevin Murphy, professor of economics, University of Chicago

Productivity and Jobs
• Marc Andreessen, cofounder and general partner, Andreessen Horowitz
• Charles I. Jones, professor of economics, Stanford University, currently on leave at Anthropic
• Asha Sharma, executive vice president and XBOX CEO, Microsoft Corp.

Inflation Frameworks
• Greg Mankiw, professor of economics, Harvard University; former chairman, Council of Economic Advisers
• Thomas Sargent, professor of economics, New York University; Nobel laureate
• William White, senior fellow, C.D. Howe Institute; former economic adviser, Bank for International Settlements

Investopedia | July 1, 2026 | Author: Nick Gallo |

Despite sounding complex, bond laddering is a simple, reliable strategy for creating predictable streams of income.

We’ll explore how it works, how financial advisors can explain it to their clients, and when using it tends to make the most sense. It’s also important to know the benefits and drawbacks of the strategy, how it compares to holding bond funds, and ways to tailor it to your clients’ needs.

What Is Bond Laddering?

Bond laddering is an investment strategy that involves purchasing a mix of bonds with staggered maturity dates. This often includes short-term, medium-term, and long-term bonds, creating steady cash flow through regular interest payments.

The strategy allows investors to take advantage of changes in interest rates over time. When each bond matures, investors get their principal back and can reinvest it into new bonds at current interest rates to maintain the ladder’s structure.

How to Explain It

When explaining bond laddering to clients, it’s better to use simple analogies rather than focusing too heavily on the technical details of the mechanics. This approach allows you to avoid industry jargon.

“I tell clients to picture a rolling staircase of bonds,” said Nick Stevens, CFP, founder of Evergreen Wealth Management. “Every year the bottom step matures, it hands you back your money, and you decide what to do with it.”

“The point I want clients to walk away with is that money is always coming due on a known schedule, so they’re never forced to sell something at a bad time to raise cash,” said Lucas Fender, CRPC, CRPS, founder of Proper Planning Wealth Management.

For clients who are already familiar with CD ladders, you can also use comparisons to that concept to help them understand bond laddering.

“Most retirees already know what a CD ladder at the bank looks like—a row of CDs, each one coming due a year apart, so something is always maturing, and something is always paying you interest,” said Stevens. “A bond ladder is the same idea, just built with bonds instead of CDs. Familiar shape, slightly different ingredients.”

Key Benefits

The primary benefit of bond laddering is its ability to generate steady, predictable income. Because the bonds pay interest regularly and mature at different intervals, investors can build a dependable cash flow schedule.

“You know what you’re getting and when,” said Stevens. “If you hold a bond until it matures, the company or the government has agreed to give you a specific amount of money on a specific date.”

Bond laddering also reduces interest rate timing risk.1 By spreading bond maturities across multiple years, the strategy creates opportunities to reinvest portions of an investor’s portfolio gradually as interest rates change over time.

“It diversifies interest-rate risk in both directions,” said Fender. “You’re never fully locked in and never fully exposed, so you don’t have to be right about rates.”

The strategy can help investors avoid the emotional stress that often comes with bond-fund volatility. When they don’t see their portfolio values fluctuate, investors may be less likely to make reactive decisions during short-term market swings.

“In 2022, when interest rates jumped quickly, the broad bond market lost about 13%—a brutal year,” said Stevens. “A retiree with a ladder didn’t really feel it. The bonds just kept paying their interest and matured at full value, right on schedule. The panicked phone call never happened.”

Another advantage is reinvestment flexibility. As bonds mature, investors can reassess their income needs, interest-rate conditions, and financial goals, then decide whether to extend the ladder or redirect their proceeds elsewhere.

When It Works Best

Bond laddering works best for investors who need predictable income, usually those who are nearing or already in retirement. The strategy can be especially effective when they have clearly defined spending plans.

Laddering can also benefit clients who have a strong preference for stability or are struggling emotionally due to interest-rate uncertainty. They may understand that bond prices fluctuate, but still feel uncomfortable watching the value of bond funds decline in the short term.

“They’re good for clients who get anxious about bond fund volatility,” said Fender. “Clients who would panic watching a bond fund’s price drop tend to stay calm with a ladder, because a bond maturing at par on a set date is easy to understand.”

“Anyone with a known expense coming up on a specific date—a home purchase, a big tuition payment, a gift to family,” said Stevens. “You can buy a bond that matures right around the time you’ll actually need the cash. That’s where ladders really shine. The bond and the bill arrive at the same time.”

Trade-Offs

Bond laddering, like every investment strategy, does have its drawbacks. One of the most noteworthy trade-offs is the potential for underperformance compared to bond funds if interest rates drop.

“In a falling rate environment, maturing rungs reinvest at lower yields,” said Fender. “A ladder won’t have the same kind of price appreciation that a bond fund can, so total return may be less.”

Bond laddering can also require significantly more upkeep than simply buying and holding a bond fund. Investors either need to manage the ladder themselves or work with a financial advisor who can maintain the strategy on their behalf.

“There’s real work involved,” said Stevens. “Someone has to find the bonds, make sure you’re getting a fair price, and reinvest as each one comes due.”

Flexibility may also become an issue if investors need access to their cash unexpectedly. While bond funds are often relatively easy to sell, individual bonds may be less liquid, especially if market conditions happen to be unfavorable.

“Selling a bond early isn’t always easy, and the price you get may not be great,” said Stevens. “The honest framing is that you’re trading some upside and some convenience for predictability and peace of mind. For the right person, that’s a great trade.”

Ladder vs. Bond Funds

Bond ladders and bond funds are frequently discussed together because they can appear similar on the surface. But they tend to serve very different purposes within investor portfolios.

Generally, bond ladders provide dependable cash flow through predictable interest payments and maturity schedules. Bond funds offer greater liquidity and quick access to broad segments of the bond market.

In many cases, the most effective approach is to combine the two. For example, investors can use a bond ladder to reliably cover planned spending, while their bond funds support diversification and day-to-day flexibility.

“I use them together more often than I use either one alone,” said Stevens. “Bond funds are easy and give exposure to thousands of bonds in one click. A ladder gives the certainty that the next several years of withdrawals are scheduled to mature, whether the market is up or down. For a retiree, that combination is hard to beat.”

Customization

Advisors should generally tailor client bond ladders to fit their unique needs. This primarily involves adjusting the length of the ladder to suit risk tolerances and aligning bond maturities with known expenses.

“A shorter ladder means more flexibility and less rate sensitivity,” said Fender. “I match maturity dates to a client’s actual spending timeline whenever possible, so the bond comes due roughly when the money is needed.”

Taxes should also influence which bonds investors hold and where.

“Municipal bonds for clients in higher brackets holding bonds in taxable accounts,” said Fender. “Treasuries for clients sensitive to state income tax, and taxable bonds in IRAs.”

The Bottom Line

Bond laddering involves buying bonds with staggered maturity dates to create a reliable income stream while reducing interest rate risk. The strategy often works best in combination with bond funds, balancing stability with diversification and flexibility.

The New York Times | June 26, 2026 | Author: Ann Carrns |

A practice that was common not so long ago has become increasingly risky — sending checks in the mail. But if you must send money this way, scour your account statements promptly. Skipping that advice can leave you vulnerable to check fraud, and may also make it more difficult to recover the money if you lose it.

Joan K. Atchinson, 63, a retiree who lives in Washington, D.C., is dealing with that right now. Ms. Atchinson said in a phone interview that she was trying to recover several thousand dollars stolen when someone intercepted a check she mailed last year. The check was altered to be payable to someone else before it was cashed. After months of trying, she said, she still has not recovered payment from either of the two banks involved — Charles Schwab, where she has an account that she used to write the check, and Chase, where the falsified check was cashed. “I’ve kind of lost hope.”

How does this kind of check fraud work?

Checks sent through the Postal Service have become targets for criminals in recent years. While fewer people write checks, the checks haven’t disappeared. Two-thirds of adults say they rarely or never use paper checks, but more than a fifth either have experienced check fraud or know someone who has, according to a poll in 2025 by the Independent Community Bankers of America, a trade group.

In some cases, thieves may pilfer one or more checks from local mailboxes. Adam Rust, director of financial services for the Consumer Federation of America, said thieves sometimes “fish” for checks at free-standing drop boxes, using long tools with sticky pads on the ends to grab letters. In other cases, more sophisticated criminals may steal large batches of checks, copy them and then sell them on the internet.

Often, the purloined checks are chemically altered in what’s known as “check washing” to remove the name of the recipient. The thief replaces it with a fraudulent name, and often increases the amount of the check, before cashing or depositing it.

Ms. Atchinson appears to have been a victim of such a fraud. She said she wrote a check in April 2025 for $3,719 from her account at Charles Schwab to pay 2024 income taxes she and her husband, Brian, owed to Maryland, where they lived previously.

Ms. Atchinson said that she didn’t recall where she had mailed the check, but that she had probably dropped it in the mail slot in the lobby of their condominium building. She recalled noticing that the payment had been deducted from her account, but said she hadn’t thought to view the electronic check image online.

Then, in February, she said, 10 months after the check was sent, the couple received a balance-due notice from the state. (It’s unclear why the tax notification took so long.) Ms. Atchinson said she had logged on to the Schwab account to obtain an image of the check, intending to use it as proof that she had paid the tax. That was when she saw, to her dismay, that the check had been changed and made payable, in unfamiliar handwriting, to a name she didn’t recognize.

The back of the check indicated that it had been deposited electronically at Chase. (Criminals tend to prefer remote options, like mobile deposit or automatic teller machines, to avoid interaction with bank personnel, the authorities say.)

Her discovery prompted her to call and email both banks multiple times and to file complaints with law enforcement agencies, she said, but she is uncertain if she will be reimbursed. The banks involved have had some back and forth since May.

Meghan Durant, a spokeswoman for Chase, said in an email, “Unfortunately, we did not receive communication from Ms. Atchinson’s bank until over a year after the check was deposited, and there are no funds available to recover.” Chase said it had not received a “formal” claim from Schwab indicating that Chase was responsible for paying the funds. It added that it took such matters “seriously” and that the account had been closed.

Tatiana Stead, a spokeswoman for Schwab, said the bank had submitted Ms. Atchinson’s affidavit to Chase and received a response on May 15 “advising that there were no funds available to recover.”

Ms. Atchinson said that she had contacted Schwab immediately when she had become aware of the fraud, noting that she had been a customer for “decades,” but that it hadn’t referred her case to a fraud specialist until May.

Ms. Stead sent an email to The New York Times on Wednesday saying, in part, “We sympathize with Ms. Atchinson.” But it added, “Timely reporting can significantly improve the ability to investigate potential fraud.”

Ms. Stead said on Thursday that a “final determination letter” was mailed to Ms. Atchinson earlier in the week outlining Schwab’s decision. Ms. Atchinson said she had not yet received the letter.

Schwab’s “security guarantee,” outlined on its website, says that “Schwab will cover losses in any of your Schwab accounts due to unauthorized activity.” But fine print at the bottom of the page notes that reimbursement “requires your timely reporting of unauthorized activity to Schwab,” and that Schwab “will not be liable for additional or increased losses resulting from a failure to report unauthorized activity in a timely manner.” It notes that more details are available in account agreements.

What should I do if I suspect check fraud?

Notify your bank as soon as possible, said Scott Anchin, senior vice president of strategic initiatives and policy at the independent bankers association.

Banks generally allow at least 30 days and sometimes up to 90 days from the time your statement is made available to you to report suspected check fraud, he said. Check your account agreement. (The agreement available online for a Schwab One account, which appears to be the kind of account Ms. Atchinson used, notes an even tighter window for reporting check fraud: 10 days. Ms. Stead, however, said the bank’s cutoff is 30 days.)

If you get statements online, the clock starts when the statement posts, even if you haven’t opened it yet. Review statements promptly, Mr. Anchin said, including the check images, because an altered recipient isn’t always obvious from a one-line entry on a statement. Banks typically make check images available online or by request.

Will I get my money back?

Sorting out which bank is liable can be “quite time consuming,” Mr. Anchin said. It may depend on details of the incident, like what sort of alterations were made to the check. “There’s a lot that goes on behind the scenes,” he said, but typically, “the customer’s bank wants to make them whole.”

How can I avoid check fraud?

Try to break the check-mailing habit. “No one should ever mail a check,” Mr. Rust said. If you must write a check, he said, try to deliver it in person or take it inside a post office to mail rather than relying on your own mailbox or public drop boxes.

The American Bankers Association recommends using permanent “gel” ink pens when you do write checks to reduce the risk of tampering. Promptly review your bank statements — including online check images — for anything that looks suspicious. And if you don’t already, consider using your bank’s online bill payment service.

All states now offer some type of electronic payment option for paying taxes, so look into using your state’s system if you owe money at tax time.

Are efforts underway to eliminate paper checks?

The federal government has been moving away from paper checks for things like benefit payments and income tax refunds, saying digital payment methods are more secure. But any effort to do away with all paper checks is likely to be contentious.

The Federal Reserve system, which acts as a central clearinghouse and electronically processes millions of checks daily, recently sought public input on potential changes to its check services.

More than 300 people and groups responded, many of them representatives of banks serving rural and agricultural communities where paper checks remain important. The chief executive of PriorityOne Bank, for instance, a community bank based in Magee, Miss., said in a comment letter that the bank served many low- and moderate-income rural communities with limited internet access. So online payments aren’t a reliable option, particularly for older residents who aren’t comfortable with digital banking.

Bloomberg | June 17, 2026 | Author: Martin Z. Braun |

More than two decades after Wall Street started pumping out a new type of bonds — those backed by the legal-settlement payments governments receive from cigarette companies — one batch has finally been driven into a default. It almost certainly won’t be the last.

The securities allowed state and local governments to get the cash upfront by selling debt that’s repaid, gradually, when the proceeds roll in. That offloaded all the risk to investors, who were compensated with high yields in return.

But the warning signs in what swelled into an $80 billion corner of the municipal-bond market have been building up for years because the size of the annual payments under the 1998 agreement are based on cigarette shipments. And those have been plunging, year after year, at a far faster pace than was expected when the bonds were sold, as Americans shun the habit or take up vaping instead.

New York’s Nassau County Tobacco Settlement Corp., the shell set up to issue so-called tobacco bonds for the Long Island county, was the first to snap. At the start of this month, it was forced to skip a $36 million payment on debt that was coming due because it didn’t have enough money, triggering a default.

The step accelerated what had already been a sharp selloff in the county’s tobacco bonds and dragged down the price of similar securities by signaling increasing distress.

“If the cigarette market continues as it is with these last four years of near double-digit declines from the major tobacco companies, then we’ll eventually see more of these structures hit events of default,” said Matt Wackerman, an analyst at AllianceBernstein.

The rout has driven lower-rated tobacco-settlement securities to a 1.6% loss so far this month, a standout in fixed-income markets that have gained as movement toward ending the US-Iran war eases worries about inflation. Some of Nassau County’s bonds that don’t come due until 2046 have slid to less than 50 cents on the dollar, a drop of about 35% since the end of last year and down from more than 100 cents as recently as 2022.

Analysts say Nassau’s skipped payment wasn’t entirely a surprise, given that it had already been cut deeply into junk status and credit-rating companies have been flagging the broader risk by steadily ratcheting down their grades on other securities. When the bonds default, moreover, investors aren’t wiped out because the deals are structured so they will eventually be paid back as the settlement payments come in, albeit with a delay.

Some of the more recently issued tobacco bonds were also better at taking account of the industry’s decline, and adjustments to the settlement payments based on inflation have softened some of the hit recently.

But it’s widely expected that many tobacco-bond issuers, particularly those who were part of the the early wave of securities sold in the 2000s, will be unable to keep up with their payments as smoking continues to decline.

Between 2021 and 2024, annual cigarette shipments by tobacco companies participating in the accord dropped an average of 7.25% year, cutting into the payments backing the bonds.

S&P downgraded 40 tobacco-bond issues last year, including Nassau County’s. The bulk of the $20.5 billion of tobacco bonds that it tracks, about $12.5 billion of them, are now rated junk. Some $9.7 billion are the CCC category, deeply below investment grade, indicating they’re likely to default.

The tobacco industry continued to contract in 2025, even before the sharp jump in gas prices caused by the Iran war started squeezing American consumers. Altria Group Inc. reported a 10% decline in US domestic cigarette shipment volume in 2025, while British American Tobacco reported a 7.7% decline. The two account for about 80% of US cigarette sales.

“The big picture is consumption is going down,” said S&P analyst Jie Liang. “You’re going to see a lot more downgrades than upgrades.”

Barron’s | May 26, 2026 | Author: Andrew Bary |

Inflation is rising, bond prices are falling, and TIPS [Treasury Inflation-Protected Securities] are having their moment.

The prospect of a protracted period of elevated inflation—stemming from higher oil prices and other factors—heightens the appeal of Treasury inflation-protected securities. TIPS are among the only bonds that can insulate investors from higher inflation.

While most bonds have dropped in price this year, TIPS have generated positive returns. And they remain attractively priced.

“TIPS are, I think, probably one of the most underappreciated and underutilized investments. It’s like a Treasury, but it has an inflation hedge,” Alex Shahidi, managing partner and co-chief investment officer of Los Angeles–based Evoke Advisors, told Barron’s Advisor.

Not enough individual investors and financial advisors include TIPS in their bond allocations. That’s a mistake.

It has been a rocky period for the bond market, with 10-year Treasuries recently hitting a yield of almost 4.7%, their highest since January 2025. Bond prices go down when yields go up.

TIPS are like insurance, offering investor protection against higher inflation. The yield on TIPS has two components: The bonds pay investors the inflation rate, as measured by U.S. consumer prices, plus a bonus, or real, yield above inflation that ranges from one to almost three percentage points depending on maturity.

Here’s the calculus for someone considering a 10-year Treasury investment. The regular Treasury 10-year note yields 4.60%, while 10-year TIPS have a real yield of 2.15%. That means inflation has to run at more than 2.45% (4.60% minus 2.15%) for TIPS to be the superior investment over the next 10 years.

That sounds like a good bet. April consumer prices rose 0.6% from March and at 3.8% over the prior 12 months. Analysts see a good chance of 3%-plus inflation for the rest of 2026—above the Federal Reserve’s target of 2%. Then there is the insurance aspect. TIPS effectively provide insurance against higher inflation, while regular Treasuries and most bonds don’t.

Long-term TIPS have the highest yields and offer an appealing stand-alone investment.

The real yield of almost 3% on 30-year TIPS is near a high in the nearly 30 years of TIPS issuance. Pension funds, endowments, and other tax-exempt portfolios often try to generate annual returns over time that are at least five points higher than inflation and make risky investments such as private equity to try to achieve that.

Investors can effectively get something close to that—a 3% real yield on Treasuries with no risk. This assumes the government doesn’t default. The break-even inflation rate on 30-year TIPS is just 2.3%, enhancing their appeal.

“With 30-year TIPS now yielding almost 3% real, investors can now lock in inflation-adjusted returns competitive with traditional portfolios without the risks that come from a large slug of equities,” wrote Bob Elliott, CIO of Unlimited Fund and a former Bridgewater Associates manager on X last week.

Most investors focus on shorter-maturity TIPS due in 10 years or less. They offer inflation protection and carry less price risk than long-term issues.

What are the risks with TIPS? If inflation cools, demand may ease and TIPS could underperform U.S. Treasuries. And if inflation does move much higher, TIPS probably will best regular Treasuries, but they still could generate negative returns.

There are more than $2 trillion of TIPS outstanding, and investors can buy them in several ways.

They can be purchased directly from the Treasury at regular auctions of TIPS of bonds with five-year, 10-year and 30-year maturities. They can be bought in the secondary market through banks and brokers. The Treasury auctioned 10-year TIPS this in mid-May and plans to sell five-year TIPS in June.

Funds, particularly low-fee exchange-traded funds from a range of issuers, offer a good alternative to individual bonds by simplifying some of ownership mechanics.

The four largest TIPS ETFs are the $18 billion Vanguard Short-Term Inflation-Protected Securities, the Schwab U.S. TIPS, the iShares 0-5 Year TIPS Bond, and the iShares TIPS Bond. The final three funds are each about $15 billion in size. Fees are low, including just 0.03% on the iShares 0-5 Year TIPS ETF, the Vanguard ETF, and the Schwab TIPS ETF. The Vanguard ETF is a share class of the larger $68 billion Vanguard Short-Term Inflation-Protected Securities mutual fund. The Pimco 15+ Year U.S. TIPS Index ETF offers exposure to long-dated bonds.

Investors can create a maturity ladder of TIPS, and iShares simplifies that with its iShares iBonds 1-5 Year TIPS Ladder ETF. The TIPSLadder.com website gives you the bond details to construct your own ladder.

Vanguard includes TIPS in some of its shorter-dated target-date mutual funds geared toward investors around retirement age.

There are some quirky aspects to TIPS. The inflation component of the yield is added to the principal every six months, and the real rate is paid in cash.

This results in a phantom income issue because investors owe federal income taxes on the inflation component (Treasury interest is exempt from state and local taxes) and get no cash. The ETFs pay out that inflation-related interest, avoiding this issue.

Another way to buy inflation-protected Treasuries is through Series I U.S. savings bonds offered through the Treasury.gov website. They now offer a yield of nearly one percentage point above inflation. The current rate—lasting through the end of October—is 4.26%. The rate gets reset every six months based on the consumer-price-index inflation figure.

With certain exceptions, investors are limited to $10,000 a year in I bond purchases. They need to be held for at least 12 months, and sales within five years result in a loss of three months’ worth of interest. I bonds mature in 30 years and have a nice tax attribute. Taxes on interest, which is added to principal every six months, can be deferred until maturity, giving I Bonds an individual-retirement-account-like character.

With inflation heading higher, TIPS are an underappreciated and underowned asset class that merits greater attention from investors.

Global Government Finance | April 24, 2026 | Author: Ian Hall |

A paper setting out how finance ministries and other public institutions could think more strategically about emerging technologies in public financial management (PFM) – and overhaul their PFM processes and functions to be ‘digital by design’ – has been published by the International Monetary Fund (IMF).

The paper – titled ‘Harnessing Emerging Digital Technologies toward a New Frontier of Public Financial Management’ – is aimed at policymakers, technologists and development partners in governments across the world considering how to modernise PFM.

Many existing PFM digital solutions are ‘inadequate’ to meet governments’ evolving needs, despite large investments from governments and development partners, the technical analysis – which weaves in nods to hot topics in private-sector finance such as tokenisation – notes.

The opportunities and challenges of digital modernisation of PFM are explored by the paper’s four authors, who state that emerging digital technologies will play a ‘critical role’ as they possess the potential to ‘significantly transform’ traditional PFM processes and functions. But the authors also emphasise that technology alone will not transform PFM.

Examples of innovative initiatives from state authorities across the globe are plentiful in the paper, which sets out 10 practical considerations to help ministries of finance to leverage technology while managing potential risks. The paper, from the IMF ‘Technical Notes & Manuals’ series, is accompanied by a set of what are referred to as ‘technology cards’ (downloadable in one chunk as a 54-page pdf), which summarise technologies that can be adopted in PFM and potential use cases.

Current PFM functions: ‘major shortcomings’

Almost all countries now use some kind of automated systems to support their PFM functions.

But the authors not that ‘major shortcomings’ typically include: poor quality or incomplete, inconsistent data; silos or lack of interoperability across databases, systems, and institutions; outdated IT architecture with limited flexibility, scalability, and security; little use of modern data analytics methods for decision making; and slow and cumbersome reporting features, as well as the lack of real-time monitoring.

‘Legacy PFM systems are often characterized by on-premises setups requiring manual updates, disconnected and siloed operations, and inconsistent vendor support, which lead to high overhead costs and operational inefficiency,’ they explain as they set out the rationale for the 46-page paper.

‘Digital modernization of PFM can allow further automation and smarter rules and processes; offer greater security, scalability, and flexibility at potentially lower costs; and ensure that systems can adapt and improve over time to meet growing and changing demands,’ they continue.

If properly harnessed, the authors state that emerging digital technologies can increase the efficiency and effectiveness by automating routine tasks; facilitate data-driven decision making across the budget cycle; ensure fiscal sustainability by supporting better data analytics and decisions in fiscal policymaking; strengthen transparency and accountability by allowing stakeholders to monitor the use of public funds; improve public service delivery by enabling seamless, real-time interactions between citizens and government agencies; and promote compliance with global norms through the adoption of international standards and practices in the PFM area.

PFM’s digital potential

Governments could redesign their PFM processes and functions to be digital by design across areas ranging from budget preparation and public investment management to government payments and contracts, the authors summarise.

Budget preparation, for example, could potentially be redesigned with artificial intelligence (AI) agents automating data validation, reporting and workflow approvals. This would, they write, ‘eliminate redundant layers of review while enabling faster, evidence-based budget formulation.’

Public investment management could ‘leverage building information modeling tools; light detection and ranging technologies; and AI-driven analytics to ensure accurate planning, data-driven project monitoring, and timely, cost-effective completion of infrastructure investments.’

Government payments, including payroll and subsidies, could be processed ‘swiftly and accurately, reaching even the financially excluded and hard-to-reach populations through new payment systems and digital money innovations’.

Government contracts could ‘leverage smart contracts and Internet of Things (IoT)-enabled asset management registries to streamline initiation, automate execution, and ensure transparent oversight of public procurement processes.’

Public debt management and technology

Tokenisation and distributed-ledger technologies (DLT) feature in the context of public debt management.

Public debt management could, the authors note, leverage tokenisation, DLT and central bank digital currencies (CBDCs) to enable the issuance and automated settlement of digitalised debt instruments, ‘fostering innovation and access for retail investors.’

The case for tokenised government bonds was analysed in a Bank for International Settlements (BIS) paper last year. With a total value estimated at $80 trillion (about £59 trillion), government debt comprises the ‘largest and most critical global asset market, and a cornerstone of the financial system’, the analysis – titled ‘Tokenisation of government bonds: assessment and roadmap’ – noted. Bond tokenisation ‘remains in its early stages but has gained momentum in recent years among both corporates and governments,’ the paper stated.

The IMF paper notes, in a separate example of innovative tech use, that ‘performance budgeting’ could apply machine learning to analyse targets and evaluate effects; or generative AI (‘GenAI’ – a sub-category of AI) to produce tailored reports for different audiences, ‘reducing the reporting burden.’

In a similar vein, they note that internal control and audit could use AI and analytics tools to detect anomalies, non-compliant and fraudulent transactions; facilitate proactive, adaptive and real-time risk management instead of manual sampling; and provide controllers and auditors with strategic insights into risks.

Probable, plausible and possible scenarios

Three scenarios – probable, plausible and possible – are set out.

The first scenario ‘maintains business as usual and represents the default option’, with legacy systems remaining in place and ‘slow adaptation, incremental improvements, and responsive measures to maintain operations.’

The plausible scenario involves ‘progressive modernization that recognizes current trends.’

The possible future is a ‘transformative overhaul’ that ‘envisions a bold reconstruction’ through the comprehensive implementation of emerging technologies, such as: AI for budget planning and reporting; tokenisation for asset management; smart contracts for payroll, debt and procurement management; IoT for inventory and public investment management; web3 for digital identity (web3 is a term used to describe the ‘next iteration’ of the internet, built on blockchain technology); and digital money for payments and receipts.

‘The timeline for a radical overhaul of PFM systems, partial or full, depends on several factors but will realistically span 10 to 20 years,’ the authors state. ‘Early adopters or countries with strong digital foundations and leadership may achieve this future in less than a decade’.

The four main determinants are seen as: technological readiness; political will and leadership; institutional capacity; and resource availability.

Moody’s | Apr 2, 2026 |

Originally tabled for implementation on January 1, 2026, the Financial Crimes Enforcement Network (FinCEN) regulation that brings Registered Investment Advisers (RIAs) and Exempt Reporting Advisers (ERAs) under the Bank Secrecy Act (BSA) was postponed until 2028.

This change seeks to close a long-standing regulatory gap and introduce more comprehensive anti-money laundering (AML) obligations for investment advisers, aligning them with other financial institutions. The estimated universe of RIAs and ERAs impacted is around 20,000, and they have many hundreds of trillions of dollars of assets under their management. While implementation is two years from now — now may be the time for advisers to start preparing.

Why this regulation matters to investment advisers

The investment advisory industry manages trillions of dollars globally, making it an attractive target for criminals seeking to launder money. By extending BSA obligations to RIAs and ERAs, FinCEN aims to create greater transparency, reduce systemic risk, and align advisers with global AML standards.

This change in regulation also reflects a broader trend toward effectiveness-based compliance, where regulators focus on outcomes rather than simply checking procedural activities.

What’s changing under the FinCEN AML Rule?

Until now, RIAs and ERAs were not subject to the same AML requirements as broker-dealers or banks, leaving the investment advisory sector exposed to financial crime risks.

The new rule requires advisers to implement risk-based AML programs, verify customer identities through Know Your Customer (KYC) procedures, and report suspicious activity, among other requirements.

These measures aim to strengthen the integrity of the US financial system and reduce opportunities for illicit activity.

Key requirements under the rule

Firms need to establish and maintain a written AML program that reflects their risk profile and appetite. They are required to verify client identities through a Customer Identification Program (CIP) and keep detailed records of these checks.

Advisers also need to monitor transactions and file Suspicious Activity Reports (SARs) when they detect potential money laundering or terrorist financing.

In addition, firms will need to conduct independent testing of their AML controls to make sure they are effective and compliant with regulatory expectations.

Who’s impacted?

The rule directly affects RIAs registered with the Securities and Exchange Commission (SEC) and ERAs that report under SEC rules. However, the impacts of this change could extend beyond advisers themselves. Service providers such as custodians, fund administrators, and technology vendors may also need to adapt, as advisers could ask for stronger compliance measures from their partners to meet regulatory obligations.

Implementation timeline

Implementation of the final rule was postponed until 2028, giving firms a larger window to prepare for compliance. Advisers will need to have fully operational AML programs in place within the next two years as examinations and enforcement actions will then begin, and firms who fail to comply could face consequences.

Enforcement and penalties

The U.S. Securities and Exchange Commission (SEC) will examine RIAs and ERAs for compliance with the rule. FinCEN retains primary enforcement authority under the BSA and may coordinate with the SEC on referrals and actions. Non-compliance may result in civil monetary penalties, enforcement actions, and reputational damage. Firms who fail to act promptly risk not only regulatory impacts but also losing customer trust.

4 things compliance teams might do to prepare

Ahead of the deadline, compliance teams can think about the following steps to prepare:

• Conducting a gap analysis of existing AML controls against the new requirements.
• Reviewing and updating policies and procedures to incorporate CIP and SAR processes, alongside providing staff training on new obligations where appropriate.
• Considering the role of technology, including solutions that automate KYC checks and support ongoing monitoring.
• Engaging with third‑party partners and vendors to support alignment with the new standards.

How Moody’s solutions could help

Moody’s offers a suite of solutions that could be used to help address the requirements introduced by FinCEN’s AML rule.

Our automated KYC and AML risk screening solutions support firms to verify identities, assess beneficial ownership, and monitor counterparties against global sanctions and watchlists.

For advisers implementing Customer Identification Programs, Moody’s provides dynamic identity verification and adverse media screening, helping firms conduct compliance activities more efficiently.

In addition, our third-party risk management platform supports continuous monitoring of suppliers and service providers, so advisers can manage risk across extended networks.

With integrated data analytics and AI-driven insights, Moody’s solutions help firms transition towards an effectiveness-based compliance approach, reducing manual processes, and improving risk visibility. By leveraging these tools, RIAs and ERAs can accelerate readiness for the 2028 deadline — strengthening their overall risk management framework.

The bottom line

The FinCEN AML rule for RIAs and ERAs represents a shift for the investment advisory sector. With the effective date set for 2028, firms can act now to build robust AML frameworks that help them with compliance activity and help protect against financial crime risks.

Proactive preparation is key—as is compliance and risk management for long-term resilience.

Pew | March 31, 2026 | Authors: Liz Farmer and Gayathri Venu |

Once considered a fringe investment, cryptocurrency is beginning to make inroads into state and local government finance.

In 2025 alone, at least 19 states considered or passed legislation that would allow a portion of state funds to be invested in digital assets or related investment products, according to a review by The Pew Charitable Trusts. Cryptocurrency is a form of digital currency that can be used to make payments, although it is more often treated as a high-risk investment.

Last May, New Hampshire became the first state to approve such a law and is now on track to issue the first municipal bonds backed by bitcoin, a cryptocurrency created in 2008. Texas, meanwhile, launched and seeded a state Strategic Bitcoin Reserve, making it the first state to fund a cryptocurrency reserve.

The push has continued this year with new legislation in Maryland and Tennessee, among others. In January, Wyoming became the first state to issue its own stablecoin—digital coins pegged to the U.S. dollar. That move was aimed at eliminating electronic transaction fees often imposed by traditional financial institutions by using blockchain technology, which provides a shared and unchanging digital ledger to record transactions and track assets.

Until 2024, cryptocurrency’s volatility and regulatory uncertainty kept it largely on the sidelines of state funds. But that year, bitcoin products won Securities and Exchange Commission (SEC) regulatory approval, opening the door for states to explore a new investment avenue for their funds. Then in 2025, the Trump administration established a national Strategic Bitcoin Reserve and released a policy report outlining further financial policy and regulatory recommendations for digital assets.

Still, the public finance world has remained largely skeptical about whether cryptocurrency should have a place in the public purse at all. A recent survey of public finance professionals pointed to the sector’s cautious stance toward risk as a reason for why only 10% of respondents agreed that cryptocurrency is a viable option for diversifying public investment portfolios.

As states explore the potential benefits and risks of banking on digital currencies, policymakers are seeking approaches that signal to investors and the industry that they intend to pursue such investments—without asking taxpayers to shoulder the risk.

A boost for cryptocurrency

The wave of crypto-related legislation in 2025 followed the SEC’s 2024 approval of new financial products, such as exchange-traded funds (ETFs) that track bitcoin’s daily market price by buying and selling it—a way for investors to gain exposure to the asset without having to store or secure the cryptocurrency themselves. Experts say that investing in a cryptocurrency ETF can reduce vulnerability to hacking and other potential risks associated with holding bitcoin directly.

Some state proposals would authorize investment in these new products while others would allow direct investment in digital assets. To reduce risk, proposals have included limits such as capping the percentage invested to 5% or 10% of public funds, or instituting a requirement for a high market capitalization threshold for qualified digital assets. Market capitalization refers to the total value of an asset’s existing shares. Investors consider high market cap cryptocurrency a lower risk investment due to its track record of growth and high liquidity, because more investors can cash out without dramatically affecting the asset’s value. Among the bills with a market capitalization threshold, investments would so far be restricted to bitcoin.

Few of the proposals, however, would limit the types of public funds that can hold cryptocurrency, leaving the door open for stabilization accounts like rainy day funds or budget reserves to include the volatile asset class. Because rainy day funds are intended as a fiscal cushion in times of need, they are primarily invested in short-term, low-risk, low-yield assets such as bonds.

Alternative assets can help buffer a portfolio against broader economic shifts and provide potentially higher yields than bonds during downturns. However, they also tend to be more volatile and may increase the risk of investment loss, particularly if funds must be withdrawn at an inopportune time. Bitcoin’s volatility has decreased over time, but it remains more volatile than traditional asset classes. Bitcoin ETFs, meanwhile, tend to mimic this volatility rather than buffer against it.

In Utah, a provision that would have allowed state reserve funds to be invested in cryptocurrency was cut from H.B. 230 before the bill passed last year. State Treasurer Marlo Oaks (R) said that alternative assets such as digital currencies were more appropriate for endowment-type portfolios, because their time horizons tend to be long enough to absorb the risk of volatility shocks. But for a fund where money could be “expended in a relatively short time horizon,” Oaks explained, “it really narrows the asset classes that you can invest in.” He added that the appropriate asset classes for rainy day funds are even more narrow because they are typically tapped during downturns.

New Hampshire’s law, H.B.302, allows up to 5% of certain public funds, including the state’s rainy day fund, to be invested in large-cap cryptocurrencies and precious metals and establishes a digital assets reserve. State Representative Keith Ammon (R), the bill’s sponsor, said he anticipates the investment approach will start with small amounts in large, long-term funds. But to him and others, digital currency adoption isn’t just an investment opportunity— it also represents an economic signal.

“It was obvious to me a decade ago that this [was] going to be a big deal,” Ammon said. “It’s the beginning of a brand-new financial system, and if we want prosperity for our state and its citizens, we should be welcoming this innovation, the capital formation, the innovators, the entrepreneurs.”

In fact, the law caught the attention of digital asset management companies and investors who are now working with the New Hampshire Business Finance Authority (BFA) to issue a $100 million municipal bond backed by bitcoin. BFA Executive Director James Key-Wallace said that the private companies would set aside roughly $160 million in bitcoin in a New Hampshire-based trust as collateral, and the authority would issue a conduit bond on their behalf. Bond buyers would be paid back with interest by the borrower, with guarantees of repayment if bitcoin’s value falls to a certain level, while the BFA would get a fee for the sale.

Key-Wallace said the goal was not only to break new ground and attract more digital asset investors but also to create a new source of revenue for the BFA, which provides loans and other types of funding to businesses throughout the state.

“Our hope is that if we do this type of transaction many, many more times, that it really starts to add up,” he said.

A targeted approach

However, many in the industry remain skeptical. In 2025, 57% of respondents in Hilltop Securities’ annual public finance leaders survey indicated that cryptocurrency was not an appropriate investment option for public entities. Concerns cited by the report included volatility, murky regulatory regimes, and vulnerability to fraud and market manipulation.

Some states are pursuing more targeted approaches when exploring the potential uses of cryptocurrency. Wyoming is focusing on “stablecoins,” a type of digital currency designed to be less volatile because their value is pegged to a real-world monetary asset. Wyoming’s Frontier Stable Tokens, which the state began issuing in January, are backed by cash and U.S. Treasuries.

Arizona and Texas are turning to strategic bitcoin reserves, which hold cryptocurrency in a separate state account. Texas lawmakers have so far appropriated $10 million, which has been deposited into the reserve in bitcoin, according to the state comptroller’s office. The amount is a small fraction of the $48 billion that the state holds across its rainy day fund and ending balance, but with legislative approval, bitcoin reserve assets could be cashed out and used in times of economic stress.

Arizona’s law is more limited. It updated the state’s unclaimed property law to include digital assets, allowing the state to hold cryptocurrency instead of converting acquired digital assets into dollars immediately. The legislation established a separate reserve for those assets and set rules for how the state can hold, stake, and sell unclaimed cryptocurrency.

Adam Schwend, director of public policy for the State Financial Officers Foundation, said he could see other states trying Arizona’s “middle ground” approach, because it doesn’t involve using state dollars to directly purchase cryptocurrency.

“It could be an interesting foot in the door,” he said. “If they [states] are finding themselves holding a great deal of bitcoin and it remain[s] stable, that may move people in a more pro-crypto direction.”

Final thoughts

States interested in cryptocurrency are taking different approaches, ranging from treating it as an investable asset to using it as a tool for economic positioning and development. Although these new ventures are designed to insulate state general funds from direct fiscal impacts, practices such as stress tests or other types of modeling can serve as fiscal guardrails to help investment officers evaluate investment targets and volatility risks.

More broadly, policymakers’ interest in digital currencies represents an exercise in asset diversification—an investment strategy intended to reduce exposure to economic shocks—at a time when many in the investment world are rethinking portfolios. This so-called “global rebalancing” is shifting investments away from a weakening U.S. dollar toward alternatives like gold and foreign bonds.

Digital currencies may eventually be viewed as a strong investment alternative. “Bitcoin holdings may provide a hedge against long-term debasement of fiat currency through inflation,” S&P Global noted in an analysis last year. But for now, the ratings agency added, cryptocurrency is likely to remain a side bet in public finance.

Governing | March 24, 2026 | Author: Craig S. Maher |

Last March, state and local officials in Kansas and Missouri were trying to understand what had just happened to their budgets. Federal grants supporting public health, nutrition assistance and community programs were suddenly reduced or cut off. Local leaders told a Kansas City news publication that they were scrambling to determine how much funding had been lost and what services would have to be scaled back. Some were calling members of Congress simply to confirm whether the money was truly gone.

This wasn’t a recession. Revenues hadn’t collapsed. What had changed were the rules. In the current environment, the tools built to manage downturns remain essential. But if abruptly changing federal policies — from tax law to Medicaid rules to funding streams — continue to reshape the fiscal landscape, those tools alone will not be enough. It will be time to re-examine larger issues of governance.

I’ve been talking with state and local finance officers over the past several months, and I keep hearing a version of the same thing: We know how to plan for economic downturns. What we’re less prepared for is federal policy shifts mid-budget.

As Dave Maynard, Philadelphia’s legislative director, noted, while his city already had a budget in place last fall, policy volatility from Washington was throwing local fiscal assumptions into chaos. “When combined with random federal funds withheld so regularly as to force budget analysts to rely on refresh to see if the funds were free,” he told me, “budgeting and planning became mostly a joke.”

To be clear, today’s fiscal tightening is not primarily the result of chaos in Washington. State revenue growth has slowed since the pandemic-era surge. As Brian Sigritz of the National Association of State Budget Officers noted, “We’ve now had three consecutive years of slow revenue growth following the double-digit increases during the pandemic period.” Most states are projecting only modest growth for fiscal 2026, according to a National Association of State Budget Officers’ survey.

That’s normalization after one-time federal aid, unusually strong consumer spending and elevated asset values earlier in the decade. It’s tighter, but it’s not collapse. Local governments are experiencing similar recalibration. The National League of Cities’ City Fiscal Conditions 2025 report shows flattening revenue growth and declining fiscal optimism, with infrastructure and wage pressures continuing to weigh on budgets.

States and local governments alike are operating with thinner margins than they had just two years ago. But layered on top of that slower-growth environment is something different: abruptly changing federal policy. Economic cycles test fiscal resilience. Institutional instability emanating from Washington tests governance itself. And increasingly instability is not episodic — it is structural.

In the past year alone, states have had to revisit tax-conformity decisions tied to the One Big Beautiful Bill Act, sometimes facing immediate revenue consequences. Ongoing debate over Medicaid eligibility rules and work requirements has complicated long-term spending projections. Federal funding pauses and reimbursement delays have disrupted cash-flow planning. Uncertainty over the farm bill and suspended U.S. Department of Agriculture programs have affected agricultural states. Interruptions to research grants have rippled through state universities and local economies. Trade and tariff authority has expanded and contracted through executive and judicial action, shifting procurement assumptions mid-cycle.

Altered Assumptions

None of these developments, on their own, amount to large-scale fiscal shocks, but each alters the baseline assumptions on which budgets are built. When executive orders, regulatory reversals or sudden funding cutoffs change program rules midstream, forecasts lose stability. Financial management becomes reactive rather than strategic. Traditional fiscal planning assumes that downturns follow patterns. Revenues dip, lag and recover. Governments have decades of experience managing that rhythm. What they have less experience with is rule volatility that has no predictable endpoint. And that raises an uncomfortable question: What happens after the next election?

If a new administration and/or Congress doubles down on current policies, volatility may persist as federal rules continue to evolve. If a new administration reverses course wholesale — revisiting tax policies, altering Medicaid rules again, restoring or rescinding funding streams — another round of recalibration will follow. Either way, instability extends across election cycles. Unlike a business cycle, which historically returns to equilibrium, policy shifts can stack. Planning horizons shrink. Governments hesitate before committing to long-term infrastructure, workforce expansion or service innovation because the assumptions underpinning those commitments may not hold.

This is where the distinction between financial management and governance becomes more than theoretical. Financial management is about balancing this year’s budget. Governance is about whether the rules are stable enough to plan beyond this year. Shayne Kavanagh of the Government Finance Officers Association captured the shift succinctly: “Finance officers used to be book balancers. Now they are volatility managers.” He argues that governments need what he calls “diagnostic foresight” — the ability to recognize emerging risks early and structure flexible responses. In a more complex and fractured policy environment, traditional point forecasts may not be sufficient. Scenario planning must account not only for economic downturn but also for policy reversal.

Governance Under Stress

In my research and conversations with practitioners, I’ve seen how repeated recalibration affects behavior. When assumptions feel unstable, capital projects are deferred. Hiring slows. Spending plans become layered and conditional. Departments quietly pad contingencies because they no longer trust the durability of funding streams. None of that is irrational. It’s governance under stress.

If policy volatility becomes a recurring feature rather than a temporary disruption, state and local governments will need to adjust how they govern, not just how they budget. States may need to incorporate federal participation volatility more explicitly into baseline projections and examine carefully how tax-conformity decisions affect long-term revenue stability. Local governments may need stronger liquidity management, more flexible capital sequencing and scenario models that assume rule change, not just recession.

Public finance has always been about managing risk. The risk now is not simply economic fluctuation. It is structural volatility in the governing framework itself. The question isn’t whether state and local governments can manage another downturn. They’ve proven they can. The question is whether they can build governance systems durable enough to withstand what could be a decade of shifting federal rules.

Seeking Alpha | February 12, 2026 | Author: Binary Tree Analytics |

Vanguard Extended Duration Treasury ETF offers low-cost, passive exposure to long-duration U.S. Treasury STRIPS with a 24-year average maturity. EDV is highly sensitive to long-term interest rates; a 1% rate move drives a ~24% price change, amplifying both upside and downside. The ETF is best suited for trading or strategic rate positioning, not for cash-flow-focused investors seeking defined coupons and step-down risk. EDV’s main risk is rising inflation or growth, which could drive rates higher and result in significant losses due to its duration profile.

Introduction to the Vanguard Extended Duration Treasury ETF

Not all treasury bonds are equal. Some are short-dated and represent a great way to park spare cash, while others have maturities exceeding 20 years, making them investment vehicles. What they all share in common is the government guarantee and a very high credit rating, albeit no longer AAA (the U.S. government is no longer rated AAA by the big three agencies).

In today’s article, we are going to talk about the Vanguard Extended Duration Treasury ETF (EDV) and its specifics within a larger investment framework.

The Segmentation of the Treasuries Sector

The treasury universe is not uniform, with a number of distinct segments:

• Treasury Bills: securities that have a maturity of one year or less
• Treasury Notes: securities that have maturities ranging from 2 to 10 years
• Treasury Bonds: securities that have maturities of more than 10 years
• Treasury Inflation-Protected Securities (‘TIPS’): securities that have maturities of 5, 10, and 30 years
• Floating-Rate Notes (FRNs): securities that have a maturity of two years and a rate of interest that is adjusted each quarter

While there are a number of segments, the largest one is represented by Treasury Notes.

The current average maturity for U.S. debt is 71 months (i.e., 5.9 years), a bit higher than the 20-year average of 65 months (5.4 years). It is interesting to notice in the above graph that the Treasury took advantage of the low-rate environment post-Covid in order to increase the tenor of the U.S. debt (this is due to low all-in rates). Note how the weighted average maturity increased in 2022. It is now coming down, and one should expect it to come down further as the government will focus on issuing shorter, cheaper debt.

STRIPS Are Created by the Market

As per the above definition, treasury bonds represent U.S. government obligations with maturities above 10 years. In fact, the U.S. Treasury only issues bonds with 20- and 30-year maturities:

We sell Treasury Bonds for a term of either 20 or 30 years. Bonds pay a fixed rate of interest every six months until they mature. You can hold a bond until it matures or sell it before it matures.

So on the primary market, the Treasury only places 20-year or 30-year new bonds. However, as these bonds come closer to maturity, their tenor decreases, thus creating a number of secondary issuances with different maturities.

And then there are ‘STRIPS.’ ‘STRIPS’ is an acronym for Separate Trading of Registered Interest and Principal of Securities, and it basically references the fact that the underlying financial instruments have only one bullet payment.

Historically, investors looking at Treasury securities decided that only certain aspects were appealing to some of their needs (i.e., only the interest component or only the principal component) and decided to strip the original Treasury security into underlying cash flows with their own identifiers. Basically, STRIPS lets investors hold and trade the individual interest and principal components of eligible Treasury notes and bonds as separate securities:

STRIPS were first introduced by investment dealers in the U.S. in the 1960s. They were initially created by physically stripping the paper coupons from bearer bonds and selling them as separate securities. The disadvantages of bearer bonds, such as the investor being unable to receive an interest payment if the coupon was lost or stolen, leading to issuing STRIPS in electronic book-entry form.

History is fascinating, and it is worth remembering that back in the day, bonds were in physical paper format; thus, ‘stripping’ a bond actually meant tearing actual paper coupons. The 10-year note would have one piece of paper for the principal and many ‘coupons,’ representing the right to an interest payment on the specified date. Thus, ‘stripping’ purely represented tearing the paper in two and selling the principal piece separate from the interest coupons.

Irrespective of the coupon/principal feature, STRIPS are still Treasuries; hence, they benefit from the full guarantee of the U.S. government. There is no credit risk here.

EDV Composition

As per its own definition, EDV: Seeks to track the performance of the Bloomberg U.S. Treasury STRIPS 20–30 Year Equal Par Bond Index. The Bloomberg U.S. Strips 20+ Yr Index measures US dollar-denominated, fixed-rate, Separate Trading of Registered Interest and Principal of Securities (STRIPS) registered with the US Treasury’s Bureau of Public Debt. The index includes interest and principal payments stripped from existing US Treasury notes and bonds. STRIPS are excluded from the US Treasury index because their inclusion would result in double-counting. Securities must have a maturity greater than or equal to 20 years. The index was launched in October 2006, with history backfilled to January 1, 2006.

EDV is therefore a passive ETF that targets the long end of the curve via STRIPS. The analytics for the fund are as follows:
• AUM: $3.8 billion
• Expense ratio: 0.05%
• Duration: 24 years
• Avg. Maturity: 24.6 years
• Yield to maturity: 5%
• SEC Yield: 5.13%

The fund has a very low expense ratio and a long duration of 24 years. Given its composition that has no credit risk (STRIPS are government debt), the name is fully driven by the levels in long-term rates.

Long-term Rate Drivers

The Federal Reserve, via monetary policy, controls the front end, while the bond markets and financial professionals control the back end. By ‘control,’ we mean the drivers. For example, 2-year treasuries are highly correlated with Fed Funds, so when the Fed cuts rates, it also moves 2-year yields lower.

When it comes to the back end, though, correlations break down, and the bond market is the one setting yields based on inflation expectations and fiscal deficits:

The drivers of short-dated U.S. Treasury yields are relatively clear. But what are the factors that affect long-term yields? In general, two-year Treasury yields can be seen as a compounding of two years’ worth of daily federal funds rate expectations, with small adjustments for liquidity disparities and other factors. However, when it comes to 10-year Treasuries, factors like inflation, economic growth and Federal Reserve’s (Fed) monetary policy, among others, play important roles.

If we look historically, we can see an interesting technical pattern for long rates. Depending on geopolitical and globalization productivity factors, we can see 30-year rates of spending time in three distinct ranges:
• 5% to 6%
• 4% to 5%
• below 4%

We are of the opinion that the benefits of globalization are now fully priced in, and the U.S. will no longer be able to go to a very low-interest rate environment. This would leave long rates in the 4% to 5% ‘box,’ with vacillations around those resistance and support points.

Given the very long duration profile, any move by 100 bps (i.e., 1%) results in a +/- 24% move in the ETF. So if 30-year rates were to move back down to 4%, expect a +24% gain in EDV. Conversely, the fund got demolished by the 2022 spike in long rates, being down over -55% since.

Buying an Individual Treasury Bond Outright Versus Buying EDV
What we want to highlight for investors in this section (especially individual investors) is the fact that buying EDV is not really the same as buying an individual treasury bond outright. Let us look at an example:

Buying a Treasury Bond With a Long Maturity Date

In this instance an investor would go to their brokerage account and source an individual treasury bond with a CUSIP that would have a maturity date close to the 25-year mark. Remember that while the Treasury does not issue 25-year bonds, they do issue 30-year ones; thus, as they come closer to maturity, they will eventually have 25-year tenors.

What does an investor get by pursuing this option (assuming holding to maturity):
• Defined cash coupons for the life of the holding (the bond will pay the same coupon every six months)
• Defined yield to maturity as calculated on day 1
• An ever-decreasing risk profile – after 10 years of holding the bond, the maturity would have dropped to 15 years; thus, the risk is lower (duration risk)
• A volatility profile that decreases every year (i.e., propensity for the mark-to-market of the bond to move around)

If we look at CUSIP 912810TV0, we can see the maturity date in 2053, a price close to par but at a discount, and a coupon of 4.75%. Buying this bond here would lock in a cash flow equivalent to notional times 4.75% divided by two, received every six months. The yield to maturity is slightly higher at 4.93%, but it would mostly come when the bond matures (the bond trades at 97.28, and you would get 100 principal back upon maturity). Irrespective of what rates do going forward, an investor would still get 4.75% times the notional purchased for the life of the bond.

Buying an ETF Like EDV

EDV is a fund available on all brokerage platforms, but buying this name comes with a different risk profile than buying a bond outright. An investor pursuing this option would get the following:
• Variable coupons for the ETF
• Variable dividend yields
• A constant risk profile by maintaining a 24-year duration
• The same volatility profile, with no step-down

EDV is more of an instrument geared towards trading purposes, whereas buying the bond outright achieves a cash-flow-centric scenario. When buying a bond outright, an investor cares only about the yield to maturity on day 1 and the semi-annual coupons received. Also note that Treasury Bonds pay semi-annually, while EDV pays quarterly.

Risks for the ETF

The main risk factor for this ETF is represented by rising inflation and growth. If inflation were to re-accelerate and the Fed were to raise rates again, the fund would lose money via its duration profile. In an environment where economic growth is still robust and inflation goes up, the Fed will be forced to move rates up, which will result in losses.

Key Advantages and Disadvantages

Advantages:
• Exposure to the long end of the yield curve
• Ability to use options (the ETF has a chain of put and call options)
• Ability to construct complex trades (2-year treasuries vs. long-dated treasuries)
• High daily trading volume and liquidity
• Specifically crafted duration profile via STRIPS

Disadvantages:
• High volatility profile