Displaying items by tag: bonds

(New York)

Munis had a wild and rough year in 2020. Everyone who invests in the sector is wondering what’s next. While the lack of direct state and municipal aid in the recent congressional package is a downer for muni investors, there is a lot to be happy about. Election certainty, good news on the vaccine front, and the inauguration of Biden are all raising the sector’s prospects. Biden is seen as more likely to help local state and municipalities with aid, which has raised prospects for the sector. Downgrades are a risk, but widespread defaults seem unlikely.

FINSUM: On the whole, things seem like they are set up for a pretty positive year. As to the possibility of downgrades, it is worth noting that downgrades usually trail economic performance, so they would take a while to come through.

(New York)

Munis have long been very popular with HNW clients because of their tax exempt income. However, a new—and slightly confusing—part of the industry is increasingly becoming popular. That new niche is taxable muni bonds. According to Barron’s “Taxable municipal bonds are the fastest-growing sector in U.S. fixed income. This year, issuance has totaled more than $170 billion, double the $85 billion sold in all of 2019. The total market has grown to $700 billion—sizable but still below the $3.7 trillion tax-exempt muni market”. Many think the new vaccines will give a boost to munis, which have suffered under COVID.

FINSUM: If you are interested in this market, check out Invesco’s Taxable Municipal Bond ETF (BAB).

(New York)

There has been a lot of talk about stocks this year, and a great deal of consternation about rates and bond prices. Yet despite all this, or maybe because of it, a middle-ground asset class has become one of the best performing of the year. Convertible securities are having a banner year. The $325 bn sector has returned over 36% through the end of November. A big portion of the gains has come from the outperformance of Tesla, which accounts for about 10% of the convertibles market. But there have been other nice victories too, such as “reopening” stocks like Carnival, Southwest Airlines, Lyft, American Airlines, and Dick’s Sporting Goods.

FINSUM: Converts do a good job capturing upside while protecting against upside, and this year has been a perfect storm for them.

(New York)

The market has been extremely volatile this year and that has put many investors on edge, especially those nearing retirement who need to rely on their portfolios for regular income. Treasury yields have gotten so low that they are not a good source of yield. So where to turn? One option is fixed annuities, also called multi-year guaranteed annuities. In contrast to fixed-index annuities or equity-index annuities, the return on MYGAs is not tied to an index. Such MYGAs are currently offering spreads of as much as 300 bp over Treasuries, representing a strong opportunity for those who need guaranteed income.

FINSUM: Two things to bear in mind when considering these—they are generally quite illiquid as the money is “locked up”, and secondly, they do have default risk but often can have limited losses because of state guaranty associations.

(New York)

The yield environment is a terrible one for anyone who is seeking income from their investments, especially those in retirement who may be living on a fixed income. So where can investors seek strong domestic yields? Check out mortgage REITs. Mortgage REITs have long offered some of the highest yields in markets because of the leverage they utilize. Most of the group have yields over 10%. Look at the following names as an example: AGNC Investment Corp. (AGNC, yield 10.2%), Annaly Capital Management, Inc (NLY, 12.9%), Anworth Mortgage Asset Corporation (NH, 14%), and Armour Residential REIT (ARR, 12.3%).

FINSUM: So obviously mortgage REITs have significant interest rate risk, but can you imagine a period where interests rates seem less likely to rise?