Displaying items by tag: rate hikes

Even though inflation continues to force the Fed’s hand on tightening, money managers are starting to rebuild their exposures toward Treasuries, with the hope that the highest payouts in years will help cushion portfolios from the damage inflicted by additional rate hikes. For instance, Morgan Stanley believes that a multi-asset income fund can find some of the best opportunities in decades in dollar-denominated securities such as inflation-linked debt and high-grade corporate obligations. That’s because interest payments on 10-year Treasuries have hit 4.125%, the highest since the financial crisis. In addition, PIMCO estimates that long-dated securities, which have been hit hard due to the Fed’s hawkishness, will bounce back if a recession should occur. They believe that a recession would ignite the bond-safety trade, where government debt would act as a hedge in the much-maligned 60/40 portfolio. Essentially, higher income and lower duration are helping to make the case that bonds will have a much better 2022. While inflation and liquidity concerns remain, the median in a recent Bloomberg survey shows “dealers, strategists and economists project bond prices will rise modestly in tandem with cooling inflation, with the 10-year US note trading at 3.5% by end of next year.”

Finsum:A combination of higher income payments and lower duration has money managers becoming more bullish on treasuries.

According to the Wall Street Journal, investor home buying has fallen 30% over the past year due to high prices and rising interest rates. The Journal cited Redfin data that showed companies bought 66,000 homes across 40 markets in the third quarter of 2022, a 29% drop from the 94,000 homes bought during the same period last year. The declines come after a two-year period in which investors piled into the US housing market as the demand for suburban properties rose. While investors were buying one in every five homes at the start of the year, a combination of rising rates and elevated prices is driving the slowdown. The Federal Reserve tightened rates from near zero in March to a current range of 3.75% to 4%, which pushed mortgage rates higher and curbed demand. The interest rate hikes were in response to escalating inflation. In addition, house prices have remained the same in many areas of the market despite the fall in sales.

Finsum:Investor homebuying dropped 30% year over year due to a combination of rising rates and high home prices.

Much has been written about the failure of the 60/40 portfolio this year. What was once the classic allocation has seen its share of losses in 2022. Fueled by drawdowns in both the equity and fixed-income markets, advisors and investors are now thinking twice about the following a 60% allocation in stocks and a 40% allocation in bonds. However, there could be a fix. According to fixed income specialist David Norris, the 60/40 portfolio split should be flipped and focused on short-term bonds. Norris, head of U.S. Credit at TwentyFour Asset Management, told Financial Advisor Magazine that “the bond side of that reversal should be anchored in short-duration bonds.” Norris said that “the rate cycle we are in now, with a lot of volatility and inflation, has created a fixed income market with rates we have not seen for a decade. Yields for short-duration bonds are very attractive now.” Norris is not wrong; U.S. short-term government bonds are paying more than 4.5% right now. A focus on short-term bonds should help investors better navigate the current volatility in the market.

Finsum:A bond strategist at TwentyFour Asset Management believes that the 60/40 portfolio should be flipped and focused on short-term bonds.

Investors were offloading ultra-short-term bond ETFs in a hurry ahead of the Fed’s most recent rate hike. The Federal Reserve’s announced its fourth-straight 75 basis-point interest-rate hike on Wednesday. Ultra-short-term bond ETFs, which are considered cash-like, saw some of the largest inflows this year as the Fed raised rates. However, it appears that investors have now had a change of heart. The iShares Short Treasury Bond ETF (SHV), which tracks U.S. Treasury bonds with maturities of one year or less, saw $2.5 billion in outflows on Tuesday in the fund’s largest one-day outflow on record, according to Bloomberg data. SHV wasn’t alone as a host of other ultra-short-duration funds also saw massive withdrawals earlier in the week. The record outflows suggest that traders believe rising Treasury yields may have topped out and they no longer need the safety that short-term bond ETFs provide. They are either open to more risk with longer duration bonds or are preparing for a potential recession.

Finsum:Ultra short-term bond ETFs are seeing massive outflows as traders extend into longer-duration bonds ahead of a potential recession.

More interest rate hikes looming? Put it this way: look out below.

Or at least it’s exceedingly likely, according to cnbc.com. That’s because, even though year over year inflation receded slightly in August to 8.3%, from July’s 8.5%, it continues to hover well above the Fed target: 2%. Hence the likelihood of additional upticks.

Now, naturally, to pile on, with unemployment still low at August’s 3.7% mark, up from 3.5% in July, some clients of financial advisors are fretting over their jobs taking a hike.

Home affordability? No exception – especially in light of escalating mortgage rates and prices that are a little rich for the wallet, tamping down the potential pool of buyers.

Despite the whirlwind whipped up my volatility, with penny stocks, there’s still money to be made, according to marketweatch.com.

A catch, however: in the eye of a mercurial stock market, knowing how to invest isn’t easy. A few tips:

Do your research – especially in the land of penny stocks. Dig down and, prior to investing, learn all you can about the company. 

Have a plan. In the clutches of volatility, have a plan and don’t deviate from it  

Diversify your portfolio. Putting all your eggs and one basket. Nada. Don’t