Displaying items by tag: rates

(New York)

There is a lot of focus on stocks, bonds, and oil right now, but a very important US asset class is sending increasingly bleak signals: real estate. Data out of the sector has been growing weaker for months, and now new figures reinforce the trend. US homebuilder confidence has fallen to its lowest level in two years. The National Association of Homebuilders commented that “While home price growth accommodated increasing construction costs during this period, rising mortgage interest rates in recent months coupled with the cumulative run-up in pricing has caused housing demand to stall. As a consequence, builders have adopted a more cautious approach to market conditions”.

FINSUM: The rea estate market is slowly but surely tightening up. However, because price gains were never as over-the-top as pre-Crisis we only expect shallow declines as the next recession unfolds.

(New York)

It might not always feel like it, but rising rates are good if you are an income investor. Rates are most definitely rising. Treasury yields are up strongly and the Fed is hiking quarterly. That can cause some rate driven losses even as yields on fixed income assets rise. One fund manager summarized the risks and benefits this way, saying “Rising rates and/or lower equity valuations should lead to higher long-term expected returns, although the movement from low yields to high yields, or high valuations to low valuations, often requires a painful short-term capital loss”.

FINSUM: The move to “low valuations” sounds terrifying as an investor, but the key is to take advantage of higher yields while holding hedged positions.

(New York)

Those worried about rate hikes will be happy to hear this news. Ever-hawkish Jerome Powell is finally starting to sound just a bit more dovish. Powell says the economy is strong, but could face “headwinds”. He says the Fed is discussing how much and how fast to raise rates and acknowledged that the Fed’s actions could inhibit the economy. He said the Fed’s goal is to “extend the recovery, expansion, and to keep unemployment low, to keep inflation low”.

FINSUM: It is good to hear some public consideration that rates might get in the way of the economy. While we would not exactly say this is dovish, it is certainly less aggressive than previously.

(New York)

With all the volatility of the last month, and midterms, less focus has been on one of the most ominous of economic signs—the yield curve. Well, Goldman Sachs has just weighed in, warning investors that a yield curve inversion is looming. Goldman went further than to say that 2-years might be flat or overtake 10-years, the bank said that spreads between 2- and 30-year bonds would fall to zero. To put that call into perspective, it would be a narrowing of 50 basis points versus now. Goldman highlighted the move in its top themes to watch for 2019.

FINSUM: We have to give Goldman Sachs a little credit here as they have been consistently hawkish about rates for at least a year and are sticking to it. We tend to agree with this view.

(New York)

One of the safe bets during bouts of volatility since the Financial Crisis has been to pile into Treasury bonds anytime things got tough. Every time stocks dipped, the bonds tended to rally strongly and became a safe haven. However, since the recent downturn in equities, this correlation has ceased. Even amidst stock and oil’s plunges recently, Treasuries have basically remained flat, giving no comfort to investors.

FINSUM: The big difference this time around is that the volatility is coming during a period of rising rates, which means Treasury bonds are not as safe a bet as in the past several years.