BlackRock said raising yields isn’t just about hiding in money market funds, now is the time to get into high-quality fixed income. The asset manager recently released its mid-year 2023 outlook for iShares, noting that with interest rates remaining elevated for an extended period, it makes sense for investors to ditch their cash and turn to other opportunities. In fact, the combination of higher interest rates and an inverted yield curve makes money market funds and T-bills alluring. As of June 29, the 3-month Treasury yield was 5.3%, while the 7-day current annualized yield for the Crane 100 Money Fund Index was 4.94%. US3M US6M 1Y Mt. Short-term Treasury rates have moved higher “Holding too much cash could put investors at risk of missing out on a bond or stock market rally,” the firm said in a note earlier this week. “With interest rates looking set to peak as the Fed’s rate hike cycle draws to a close, investors may consider moving into high-quality medium-term fixed-income products.” BlackRock is focusing on bonds with maturities of three to seven years. The firm noted that “core bond exposures outperformed cash equivalents by 4%” between 1990 and February 2023 when the Fed held rates steady or cut them. The firm also noted that even if the central bank raises rates higher than current market expectations, “the spread from higher coupons more than offsets the losses from higher rates.” Bond yields are inversely related to their prices. In addition, the price of longer-dated bonds is more sensitive to the changing interest rate environment. Some investors are starting to shift to longer maturities. BlackRock noted that mid- to long-term fixed-income exchange-traded funds have received $27.6 billion in inflows so far this year, 15% higher than their short-term counterparts. For those looking for more yield and a little risk, BlackRock recommends emerging-market local-currency bonds, which yield 7.7 percent and have a weighted average coupon of 5.9 percent. “Given that many EM central banks target inflation around 3%, we believe investors are adequately compensated for longer-term inflation risk at current levels,” the firm noted.