Displaying items by tag: rates

(New York)

On Tuesday markets seemed to reverse course. Even as stocks plunged, it appeared that for the first time in recent memory, they were the asset class driving bonds rather than the other way around. Yesterday, the idea of equities taking on a life of their own seemed to reinforce itself, as stock rose modestly even as bond yields jumped higher and stayed steady above 3%.

FINSUM: This is a very tenuous time for markets. Something is definitely happening in bonds, but no one—Wall Street included—knows exactly what.

(New York)

The ten-year Treasury rose to just above 3% for the first time in years yesterday, possibly signaling the start of a new era for fixed income. Therefore, one would be forgiven for thinking the bond market drove the big losses in stocks yesterday. However, the opposite may be true, as for the first time in a while, it seems that worries over earnings and new measures of investor sentiment sent the market sharply downward. In a total reversal from January, investors are now very bearish on the market according to economic surveys. This news appeared to spook investors and then in turn disturb the bond market.

FINSUM: Yesterday might be the start of a poor cycle, where stocks and bonds take turns scaring one another to steeper losses. Perhaps that is just a manifestation of a changing cycle.

(New York)

If anything is becoming clearer in financial markets, especially after yesterday, it is that rates and yields are bound to rise. Thus many might be worried about how to protect their clients from the changing market. Barron’s has some suggestions. The key is to hold a fixed income portfolio for several years, a minimum of six, and to make sure to reinvest proceeds in higher yielding bonds. To achieve the targeted five-year maturity sweet spot, consider Vanguard’s intermediate Treasury fund, while also mixing in some Treasury Inflation Protected Securities (TIPS) to provide further protection.

FINSUM: This seems like a good strategy for a long period of gradual rate hikes.

(New York)

For a while there it was looking less likely that the Fed might hike aggressively. Weak jobs numbers seemed to indicate that the economy might be headed downward instead of upward, which would have put rate hikes on hold. However, investors are now once again increasing their bets that rates are going to rise. Many investors now expect the Fed to hike three to four times this year. According to Allianz, “You have this tug of war with the Fed trying to match policy to rising inflation expectations without taking the wind out of the sails of the economy”.

FINSUM: To be totally honest, we don’t think Powell is going to be hawkish enough to hike 3-4 times this year.

(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.