Displaying items by tag: yields

Tuesday, 11 August 2020 15:59

Junk Bond Yields are Now Shockingly Low

(New York)

Anyone who has been looking at the bond markets is likely to be shocked at the recent moves in the space. Many “high yield” bonds (it is now necessary to use quotes) are yielding what very high quality investment grade bonds were just months ago. A recent sale saw $1 bn of new issuance for a BB+ company at a 3% yield. The huge move downward in bond yields is the result of the Fed’s unprecedented stimulus action, and in particular, their mandate to backstop corporate bonds.


FINSUM: The Fed’s actions have been so warping that they have called into question the very definition of a high yield bond. If every bond is backed by the Fed, then it makes perfect sense that their yields would equalize. In this way the market’s reaction is entirely predictable.

Published in Bonds: High Yield
Monday, 03 August 2020 15:24

Junk Bonds are Soaring

(New York)

Junk bonds have been on a tear lately. July was the best month for the asset class in nearly nine years, with overall returns near 5%. The average junk bond yield fell from 6.85% to 5.46% over the course of the month on the back on continued monetary and fiscal stimulus. The market has risen so much that many are questioning if they have already missed the opportunity. To this question, one high yield fund manager says “I don’t think so . . . Governments across the world want to make sure credit is working properly”.


FINSUM: As long as sovereign yields stay super low and the Fed and government keep the life lines open, it is easy to imagine yields will keep falling for junk.

Published in Bonds: High Yield
Friday, 31 July 2020 08:47

A Bold Play to Get High Yields

(New York)

Yields have almost never been lower. In some cases, they are at all-time lows. This has made income-oriented investments a real challenge. So how can investors get great yields right now? Well the first thing to bear in mind right now is that to get really juicy yields, one is going to have to take some risk. With that understood, take a look at mortgage REITs. Mortgage REITs took a huge hit when the pandemic began for fear of declining credit quality in the underlying mortgages. To-date they have only recovered somewhat. However, two of the biggest—Annaly (NLY) and AGNC Investment (AGNC)—are sporting yields of 13.5% and 10.6% respectively.


FINSUM: Mortgage REITs have obvious risks right now given ongoing unemployment, but with prices low and yields high, they look like they have a place in the portfolio.

Published in Eq: Real Estate
Wednesday, 29 July 2020 14:37

Citi: REITs Look Like a Good Bet

(New York)

It might seem a bit counterintuitive right now, but that may be exactly why it is a good bet. REITs have been beaten up pretty badly, and on the surface they seem likely to stay that way. Offices, retail, and other parts of the commercial real estate world look to remain weak, but Citi’s private bank thinks there is value in the sector. As to their role in a portfolio, Citi says REITs “are a way to play the U.S. economic recovery and global economic recovery without being too concentrated in the Microsofts of the world, and to add to portfolio yield on top of that while we wait for that recovery”. REITs are yielding about 7% on average and the market has been so beat up that they look underpriced relative to the value of their underlying assets.


FINSUM: The key here is either broad long-term exposure, or shorter tactical exposure to sectors that don’t look likely to be hurt (e.g. industrials, which benefit from growth in ecommerce).

Published in Eq: Real Estate
Monday, 27 July 2020 14:47

Market Fear Sends Gold to All-time High

(New York)

It took almost ten years, but gold finally just passed its nominal all-time high (set way back in 2011 during the European debt crisis). That is not a good sign for the market. Gold is rising because of increasing worries about a prolonged economic downturn caused by a renewed COVID second wave. Gold hit $1,944 per troy ounce today, cruising past its previous high of $1,921 per ounce. “Gold has finally come on to Main Street as an asset people actually need to have”, says the CEO of Sprott, a precious metals specialist.


FINSUM: Gold has been helped by fears over the economy, and the fact that rates are near zero, which flatters zero-yielding gold.

Published in Comm: Precious
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