You know the deal by now. US bond yields are rising because investors are worried about persistent inflation, fueled by higher oil prices, which could drive up interest rates. At the same time, the rationale for rate hikes has been strengthened by a surprisingly resilient American economy that looks like it can absorb them. Meanwhile, the rapidly growing, supersized US debt pile means the Treasury has to keep issuing large amounts of bonds, whose higher yields could lure investors at the expense of equities.

On Thursday, this bundle of macroeconomic forces drove yields to the highest in decades. The 10-year US Treasury yield surged more than 10 basis points to 5.223%, the most in 19 years, while the 30-year yield hit 5.501%, the most since 2004.

The Yield Appeal

This week offered new evidence that the US economy has the wherewithal to withstand higher interest rates, a key tool for the Federal Reserve to curb inflation. S&P Global released data showing US business activity surged at the fastest rate in more than five years in September. That strengthened the odds that the Fed will raise interest rates in October to about 70%, up from 55% a week ago, according to CME FedWatch.

Bond yields tend to track interest rates, and there are concerns about what a 5% or higher yield on the 10-Year Treasury means for markets. Because Treasurys are backed by the US government, they’re considered virtually risk free. When yields surge, investors are forced to rethink their rationale for choosing between stocks and bonds. Equities with 5% to 6% annual yields, which aren’t guaranteed and are subject to stock market volatility, are suddenly a lot less appealing to long-term investors who can lock in guaranteed returns through higher bond yields. The resulting concern is that investors are incentivized to move money into the Treasury market at the expense of stocks. In reality, it may not be so simple:

• Investment bank Jefferies forecasts earnings at S&P 500 companies will climb 35% this year. Growth like that is more than enough to keep investors from decamping for bond yields.
• For small-cap companies, which are sensitive to higher rates because they are much more reliant on short-term bank loans and floating-rate debt, the road ahead looks much steeper.

Unlucky Number Seven: While the US economy remains resilient, there is one notable weak spot. The 10-year yield strongly influences consumer borrowing rates, and the average 30-year fixed mortgage rate rose to 7.03% on Thursday, the highest in 20 months, according to Freddie Mac data. The annualized pace of US home sales had already slowed for the past three months, and it’s hard to imagine people lining up for 7%+, 30-year mortgages.

When you need to check a math problem, you confidently reach for a calculator. When it comes to taking required minimum distributions from tax-advantaged retirement accounts, things aren’t so simple.

There are nearly two dozen popular required minimum distribution calculators available online today, according to a new study from Trigg Thorstenson, founder of SimpleRMD, which provides its own calculator and tracking service. Most are adept at running the basic numbers for a single client with one tax-deferred account, but things get trickier when someone has significant wealth across multiple accounts. Guidance about RMDs is highly valued by clients, but advisors need to be double-checking their math.

“There are no flawless RMD tools out there that eliminate the complexity in this type of planning,” Thorstenson said. “Our goal with the study isn’t to declare a winner. It’s to bring transparency and to help every tool we’ve examined, including ours, get better.”

High Stakes Math

The stakes are high when calculating RMDs, as the IRS imposes a 25% penalty on amounts not withdrawn. But if corrected early, the penalty may be reduced to 10%.

Where did some of the tools fall flat?

• All passed the control scenario of tabulating RMDs for a 76-year-old with one IRA.
• But some had trouble navigating ambiguity in the tax law created by a drafting error in the Secure 2.0 Act applying to people born in 1959.
• IRS regulations have resolved the glitch by declaring that anyone born in 1959 must begin taking their required minimum distributions at age 73, which 10 of 21 tools acknowledged. Eleven tools were silent or could not accept the scenario.

Other areas where problems arose included calculating RMDs on inherited IRAs and calculating RMDs when a client has a spouse who is at least 10 years younger. Just one tool in 21 aced the test (it wasn’t SimpleRMD’s own).

Peer Review. The results of Thorstenson’s analysis resonated with Laura Varas, CEO and founder of Hearts & Wallets, which recently rebranded to H&W. “H&W has been benchmarking advice experiences since 2012,” she said. “There are many inconsistencies, as Trigg demonstrated, and across many aspects of advice and guidance.”

In one H&W review, a public retirement calculator from a major financial provider suggested that a mid-50s couple with income of $200,000 a year, $800,000 of investible assets and no debt would need to save $131,000 more a year to be “safe” for retirement.

“It seems excessive, and what are they supposed to do to achieve that? Live under a bridge?” Varas asked. “There are no single right answers to these planning questions. Many answers can be right, depending on individual situations, and some public tools need to address potential bad answers.”

If you can’t beat ’em, join ’em.

That might be the ETF market’s new motto, thanks to a surge of M&A deals including Goldman Sachs buying options ETF provider NEOS Investments and T. Rowe Price buying fixed income provider F/m Investments. Acquisition of an indie shop lets many large asset managers avoid FOMO by adding specialization and differentiating their product lineups. The fastest way to get into the game or to expand their ETF footprint is by buying another firm, said Brittany Christensen, senior VP of business development at Tidal Financial Group. But what makes an ideal acquisition candidate?

“It’s partially about your brand recognition, as well as being known for a specific type of ETF strategy,” Christensen said. That strategy can complement what the large asset manager offers or help them expand in a space where they’ve failed to be competitive.

The Upshot for Investors

The motivation for a firm’s purchase of an ETF shop is often the underlying infrastructure, because it can take a while to bring an ETF to market, Christensen said. It’s about finding smaller shops with existing distribution or that are well known by ETF allocators. A lineup of ETFs or a “repeatable idea” that can be used on different indexes or on different underlying names or portfolios to build out a suite of products is also attractive, Christensen added.

But firms should also consider what the change means for investors who use the ETFs at acquired shops:

• “Too many acquiring firms assume that investors in the ETFs that are being acquired will be happy to be a part of a large firm,” said Stacy Havener, founder and CEO at Havener Capital. “The devil is in the details. And the onus is on the acquirer to craft a narrative that meets investors where they are, addressing their concerns, and their fears, and their hopes about the future.”
• Acquisitions of sponsors of relatively unique ETFs “are likely to be a positive for investors, since the purchasers are usually larger, better funded companies, so there will likely be more resources available to the management of the ETFs,” said Kathleen Macpeak, an attorney at Morgan, Lewis & Bockius. “In such a case, there are typically no big changes to the products.”

Most Eligible. Bloomberg ETF analyst Eric Balchunas recently ranked what he called the “most eligible indie ETF issuers” by organic growth rates, size, revenue, asset stickiness and product diversification. Plenty of household names including Roundhill Investments, Tema, Rex Shares and VanEck made the list.