Displaying items by tag: rates

(New York)

The bond market is scaring a lot of investors right now. It is caught between the likelihood for higher rates and fears over a recession. With that in mind, we thought our readers would be interested to hear some thoughts from WisdomTree Financial, who has put out their “highest conviction fixed income trade” over the next two years. While shorter term duration bonds look attractive, especially one- to three-month bills, WisdomTree says investors should move into floating rate treasuries instead. The US floating rate note (FRN) debuted in 2014 and the rate floats based on the 13-week t-bill yield plus a spread. Coupons are paid quarterly.

FINSUM: So shorter duration bonds look attractive because their yields are strong relative to longer maturities and they have less sensitivity to rates. The FRN seems to accomplish the same goal.

(New York)

The bond market is in flux. It is caught between several strong opposing forces. On the one hand, the Fed looks intent to raise rates. On the other, many are worried about a recession. Finally, the huge and increasing crop of retirees need reliable income. With that in mind, here are some potentially good bond buys from Pimco. The fund manager doesn’t think we will have a recession soon, saying “We think the [economic] cycle will continue for the next couple of years, but stocks aren’t cheap and bonds aren’t cheap”. Pimco suggests looking at high quality junk bonds, and the short end of the Treasury yield curve (e.g. 2-years, which are yielding over 2%).

FINSUM: High quality junk is still yielding over 5%, while the short-end of Treasuries also looks appealing. We don’t think there is a reason to flood out of bonds yet.

(New York)

Equity investors may be understandably frustrated and anxious at the moment. The rebound after February’s lows has not held up and stocks are right around their bottom for the year. Well, if history is any guide, the pain will likely last 200 days. That is the average length that a correction has lasted during this bull market, and this is the sixth of its kind since 2009. The longest was 417 days between 2015 to 2016. The market is already 60 days into the correction, so if the forecast holds, it would emerge in August.

FINSUM: This would only provide comfort if one thinks the current correction is merely that, and not a full blown bear market.

(New York)

One of the most popular fixed income assets for wealthy US investors are municipal bonds. Their tax exempt status has made them continually popular, but what will their fate be during a period of rising rates? There are currently fears that tax cuts and rising rates will wound the sector, but one top financial advisor says the muni sector “will retain its rightful position as a place where wealthy Americans protect their wealth”. Despite rising rates there will be lower issuance this year, which will protect the sector. Additionally, tax cuts for the wealthy will be modest, and not really enough to damage munis. “They will still be a relative value compared with other fixed-income, high-grade asset classes”.

FINSUM: We suspect munis will continue to have a high degree of demand, and if issuance stays low, then those are two important supportive factors. However, some municipalities are facing big budget and pension issues, which could pose a risk.

(New York)

Something very curious is going on in the REIT industry—the funds are liquidating their holdings. REITs have not performed well over the last couple of years, which means many share prices are quite low relative to the market. This means they also frequently trade at a discount to the value of their underlying holdings. In response, many REITs are selling off their property holdings to make a return and bring in cash instead of issuing new shares. REITs have fallen victim to rising interest rates, but are not, in general, using the cash injections to pay down debt.

FINSUM: Considering the position they are in, this does not seem like an unwise move. It also likely signals there is a big buying opportunity in REITs if only you can stay in them long-term.