Displaying items by tag: rates

Monday, 02 May 2022 20:10

The Looming Bond Collapse

The IMF has warned investors that there are growing concerns about an emerging market debt crisis. There is anxiety that sluggish growth, higher interest rates, and surging inflation will hurt developing economies much more severely than developed ones. They will be disproportionately affected because highly indebted countries will have a dip in their investment and suffocate their currencies. These concerns aren’t new and emerged at the start of the pandemic, but this swell seems different. The Fed responded by pumping trillions into the economy in 2020 and they are doing the exact opposite now. Additionally, war and other risks are heightened now with Russia-Ukraine’s escalation.


Finsum: Investors searching for yield should be wary of emerging market bond funds given unprecedented risk levels.

Published in Bonds: Total Market
Sunday, 01 May 2022 15:42

Bond Market Rally on the Horizon

Calling bond prices stubborn would be an understatement, and the bears have been continuing to pull investors out of the bond market in the mass exodus of outflows. The tides could be starting to shift, and the reasons are on opposite ends of the spectrum. Investing yield curves and recession indicators are flashing, which means investors will flock back to the bond market as a safe asset when equities fall. On the other side of things, if inflation is being driven by supply-side factors more than the Fed thinks, then inflation will fall dramatically, and less tapering will be needed to get there. This means bond prices could rise as yields fail to. Broad bond exposure is still a good idea with volatility rising.


Finsum: It’s been rough in the bond market the last few months, but there are economic reasons that could turn around.

Published in Bonds: Total Market
Monday, 18 April 2022 20:03

Bonds See Worst Month Since Financial Crisis

The bond market has taken a beating and investment-grade debt has been anything but a safe haven for income investors. This has been one of the third-worst stretches in history as the YTD returns have been -10.5% which is only bested by the Lehman collapse in late 2008 where returns crept to -14.3% and Volcker’s days of battling high inflation and hiking rates. Investors are selling off investment-grade debt as the risk-free rates on Treasuries are climbing as the Fed’s tightening cycle is beginning. These rising yields are all corporate bond ETFs and driving returns down, but things could get worse as rates will only continue to rise and inflation is only beginning.


Finsum: Income investors need to look to active funds or abroad if they want relief in the bond market.

Published in Bonds: Total Market
Monday, 04 April 2022 20:44

How to Defend Against Rate Hikes

Not all REITs are created equally, and many have been pumping out dividends and will come to a screeching halt as the Fed begins to hike interest rates. However, three REITs are in a good position to show dividend resilience to the interest rate risk. The First is Medical Properties Trust which is a healthcare REIT that has three developing investments to create flows for dividends. VICI Properties is up next which is acquiring MGM Growth Properties and has a very low debt to EBITDA ratio which will help in securing dividend payouts. Finally, a long-term strategy is the 1st Street Office which has a consistently high dividend and shares are tied to its NAV.


Finsum: Rate hikes are slow to affect real estate compared to other assets, but aggressive hikes could move quicker.

Published in Bonds: Treasuries

The Fed hiked rates at the latest FOMC meeting but they were partially forced to with just about every measure of inflation hitting 30-year highs. However, more importantly they project that the federal funds rate will hit 2.75% by the end of 2023. This may have been the first hike in years but it will be one of eleven if they want to hit that mark. The bond market is pessimistic as they not only are projecting less hikes, but slower growth as well. The yield curve is indicating inflation will be under control but it might be costly. Typically this means that the Fed won’t mean to hike as frequently as they are indicating. There has been a lot of action in the TIPS market and it is indicating they expect inflation to average just shy of 2.8% in the next decade.


Finsum: Markets are most likely right in this scenario and that fewer rate hikes will get inflation under control; hopefully the economy can take the hit.

Published in Bonds: Total Market
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