Displaying items by tag: bonds

(New York)

The market is doing what everyone hoped it would. Just as the big losses of the last few weeks saw both stocks and bonds falling at the same time, both markets are now rising in unison. Stocks rose strongly on Friday and are up on positive news out of China today, while bond yields are also falling. China had its biggest trading day in three years as the government announced it would support the economy following the slowest economy growth in nine-years.

FINSUM: One thing to watch in Treasuries is that there is such a supply of them right now that demand itself is starting to negatively affect the bonds. Therefore, it is not just the Fed and rates weighing on Treasuries, but the sheer volume that the market is having trouble consuming.

(New York)

Barron’s ran an interesting article today chronicling the market views of famed investor Leon Cooperman. The legendary hedge fund manager argues that investors should stay away from bonds, but that stocks are “fundamentally cheap”. “My world is cash and stocks … I think bonds are the bubble”, says Cooperman. He argues that a big downturn in stocks is not in the cards because the economy “if anything, is too strong”.

FINSUM: This argument makes sense, bonds do seem overvalued. However, what if stocks and bonds are too pricey? That seems logical too.

(New York)

Short-term bonds are looking like an ever better buy right now. Two-year Treasury yields are at 2.87%, up from 1.55% a year ago, and well over the 1.9% average yield of the S&P 500. That means the spread between the two- and ten-year notes is only about 28 basis points. Considering the latter has significantly more rate risk, two-year bonds like a good bet right now.

FINSUM: There are many ultra short-term bond funds out there to choose from. Actually, given the breadth of ETFs in the space, there has never been a better or cheaper time to play defense in this kind of rate environment.

(New York)

Every time there is a bout of volatility, the financial media, and inevitably a few market analysts, forecast that ETFs may be at the center of the next flare up. Yet for the most part, ETFs have held up very well to periods of turmoil. Despite this solid performance though, the creeping logic that they might have a problem lingers. The Financial Times has just posted an article which argues that just as ETFs have managed to magnify the rise in equities, they will also exacerbate the fall. Since so many assets are now in passive funds, the risk of a herd mentality—with all investors having similar stop-loss orders—leading to a big selloff seems likely. Further, since there are fewer active managers playing the role of contrarians as the market falls, who is going to be there to insulate the market when it begins to tumble?

FINSUM: The ETF structure has proven itself quite resilient so far. We are not saying there won’t be a problem, but we feel like the underlying problem in the next meltdown might not have to do with ETFs themselves, rather it may just be magnified by them.

(New York)

Want to maintain your portfolio’s income, but also afraid of rising rates? Many are, as it is a difficult challenge keep income high but not experience losses. With that in mind, here are a handful of mutual funds which should help do just that. One area to look for diversified income right now is in multi-asset income funds. Some of the best are the American Funds Income Fund of America (AMECX), the Vanguard Wellesley Income (VWINX), the BlackRock Multi-Asset Income (BAICX), the JPMorgan Income Builder (JNBAX), and the Principal Global Diversified Income (PGBAX).

FINSUM: Many of these funds are quite old and have had great performance. Fees are all over the map, but one of the areas where they tend to succeed is in having good performance with lower volatility than the market as a whole.