Displaying items by tag: rates

(New York)

One of the market’s favorite prognosticators has just called for a big financial crisis. Mark Mobius, 81, veteran investor, thinks that EMs are going to plunge, and that the normalization of interest rates and monetary policy will cause a crisis. “There’s no question we’ll see a financial crisis sooner or later because we must remember we’re coming off from a period of cheap money … There’s going to be a real squeeze for many of these companies that depended upon cheap money to keep on going”, says Mobius.

FINSUM: Emerging markets are currently having a rough time and the rise in rates is going to be turbulent, but calling for a Crisis seems a bit premature.

(New York)

Pensions have been on a long and miserable path since the Financial Crisis. They have been chronically underfunded and suffered from poor returns, but after a weak decade, there is finally some good news. That news is that interest rates are up, which means that US corporate pension plans are now 92.8% funded versus 87.6% funded at the beginning of the year. The shift is almost entirely because of changes in yields. Higher yields make it easier for pension funds to meet their future cash needs.

FINSUM: Higher interest rates will be better for all retirees, and it is good that pensions are finally catching a break. One wonders if we are approaching a sweet spot in rates where mortgages remain affordable, but yields are high enough to satisfy pensions and retirees.

(New York)

Are you worried about an inverted yield curve and the arrival of a recession? Morgan Stanley thinks you should be, as the bank has just called for a big bust coming to markets and the economy. MS thinks the Fed will end its contraction of its balance sheet soon, which will be supportive for long-dated Treasuries. Accordingly, with short-term rates still rising, the yield curve will invert soon; by mid-2019 says the bank. Morgan Stanley recommends investors to be overweight US Treasuries and underweight corporate credit.

FINSUM: The spread between two-years and ten-years is only 27 bp right now. We think it will much less than a year before an inversion, especially given the hawkishness of the Fed coupled with the threat of a trade war.

(New York)

Everyone knows it has not been a good year for bonds, especially Treasuries and long-dated bonds. However, did you know that it is July and the bond market is on pace for its worst annual performance in a century? (yes you read that correctly). Global bonds are on pace for an annualized loss of 3.5%. So the question is how can one keep money in the market, but not get hammered. The answer is high-grade, short-term bond funds. Floating rate corporate loans and high-yield municipals seem like good areas of focus. Remember that shorter duration bonds are less susceptible to interest rate risk, which makes them safer as the Fed raises rates.

FINSUM: These picks seem spot on to us. Higher-yielding, shorter duration, and floating rates all appear to be good selections for the current environment.

(New York)

Everyone is feeling it, but no one is sure when it might actually come. The big question is when will this bull market end and finally reverse into the bear market everyone fears. While a solid case could be made that it has already happened, Barron’s says it will be in 2020. The logic is that in 2020 the US will be facing genuinely higher rates, and the short-term benefits from tax cuts will have faded from earnings and the economy.

FINSUM: There is a serious argument to be made that the market may have already peaked, but the idea of a 2020 downturn sounds quite compelling too.