In the wake of soaring yields in 2023, U.S. financial technology companies that revolutionized amateur stock trading are venturing into the fixed-income arena, seeking to capitalize on the growing interest among retail investors. Firms such as online brokerage Public, wealth management platform Wealthfront, and fintech software company Apex Fintech Solutions are launching innovative products to facilitate easier and more affordable access to fixed-income assets like Treasuries and corporate bonds.
This strategic move by fintech companies underscores the evolving investment landscape, driven by the Federal Reserve’s interest rate policies. While bonds have traditionally been perceived as a more stable aspect of finance, the surge in yields has prompted retail investors to explore this market, historically considered cumbersome and expensive to navigate.
Despite the Federal Reserve’s contemplation of rate cuts in 2024, fintechs see an opportunity to transform retail bond investing. Drawing inspiration from the features that popularized stock trading, such as low-cost products, financial education tools, user-friendly apps, and fractionalized shares, these firms aim to demystify and democratize the fixed-income market.
Public and Apex are pioneering fractionalized bond products, mirroring the approach taken with fractionalized stock shares by many online brokerages. Public’s announcement of offering customers the ability to invest in $100 slices of Treasury and corporate bonds gained traction in 2023. The success of Public’s Treasury account, the most prosperous product in 2023, according to investor flows, underscores the growing interest among retail investors in fixed-income assets.
The move by fintech firms is a response to the changing dynamics of the investment landscape, driven by two-decade-high Federal Reserve interest rates. As the world transitions from an era of easily accessible money to one where it is not as abundant, 2024 is expected to be a pivotal year when the effects of this shift become more evident.
Companies and even entire countries may need to restructure their debt liabilities, adapting to a scenario where interest payments are no longer affordable. This trend is already visible in emerging market debt negotiations and the rising number of corporate bankruptcies. Sectors like commercial real estate, impacted by new post-pandemic work trends, are expected to face challenges, with landlords potentially revaluing portfolios.
For consumers, while higher borrowing costs may yield more from savings, the adjustment to rates more than twice as high as what many have experienced in their 30-year mortgages will require financial recalibration.
In conclusion, investors’ convictions are likely to be tested as they navigate a landscape where interest rates play a central role. Fintech firms are at the forefront of transforming retail bond investing, offering accessibility and ease of use that align with the preferences of a new generation of investors. The success of these initiatives will unfold as the market adapts to the changing dynamics of interest rates and retail investor preferences in 2024.
