Displaying items by tag: bonds

(New York)

In what shocked us as a very eye opening statement, a number of funds are saying the market now is more fragile than before the Financial Crisis. According to one so-called tail fund, or funds that invest for profiting when there is a big market reversal, “The financial system is a lot more fragile than it was in 2007 … Leverage is up on every single metric, in just about every category, and debt has increased. The more you indebt someone, the more fragile they become, especially with variable interest rates”, says hedge fund manager Richard Haworth.

FINSUM: These kind of funds are always warning about the next catastrophe, but somehow their warnings seem more prescient right now.

(New York)

As we have told readers, we have been keeping our antennae up for signs that an economic downturn may be on its way. Well, the biggest one of all just showed its head, and investors need to take notice. An important part of the rates market just showed an inverted yield curve. The one-month U.S. overnight indexed swap rate is now inverted, and this implies some expectation of a lower Fed policy rate after the first quarter of 2020, says JP Morgan. The Bank summarizes the situation this way, saying “An inversion at the front end of the U.S. curve is a significant market development, not least because it occurs rather rarely … It is also generally perceived as a bad omen for risky markets”.

FINSUM: If the market thinks rates are going to be lower in 2020, that means parts of the bond market are expecting a recession between now and then. Take notice.

(New York)

The actively managed ETF used to be a rare breed, and one that didn’t even make sense so long ago. However, with the rise of the asset class has come an explosion of variety, and especially, the overlaying of themes into ETFs. With all that said, the difficulty is choosing the best actively managed ETFs. Here are some to look at: Fidelity’s Total Bond fund, Davis Worldwide Select fund, Vanguard U.S. Multifactor, the iShares Russell 1000 Growth, JPMorgan Disciplined High Yield, iShares iBoxx $ High Yield Corporate Bond.

FINSUM: This is an interesting mix of funds, and most have expense ratios under 0.65%. Generally speaking, we like the idea of actively managed ETFs so long as the fees stay low.

(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)

While there are a lot of concerns about the bond market right now, one of the risks that is being ignored is credit quality itself. Well, there might be a bomb set to go off in credit. In particular, there appear to be major risks in the Triple BBB category of bonds. This group is considered investment grade, but only just so. There are currently $2.5 tn in US debt with this rating, double the level of five years ago, according to Morgan Stanley. MS says that in a downturn, investors may abandon this type of debt, raising rates for the borrowers, and in turn exacerbating the economic contraction. All of which seems likely to hurt the stock market.

FINSUM: This part of the bond market is so huge, that an exodus from this area would greatly wound the economy.