Displaying items by tag: fed

Saturday, 14 May 2022 06:42

Fed vs ECB Causes Fixed Income Inflows

The Fed had its largest hike in two decades, and the ECB has gone ultra-dovish. This has sent a huge influx of Euro area investors into U.S.-short-durations bond ETFs. Funds like the iShares 3-7yr UCITS ETF had over $600 million in inflows last week. Short-duration corporate debt was also favored by euro area investors. Overall the bond market had seen an exodus in the previous weeks but this confluence of factors has been enough to entice investors. While the Fed has made up its mind they have contributed to inflation, bank heads in Europe are mixed which will leave policy to be accommodative for the near term.


Finsum: The Fed could be over-reacting and Europe could be under-reacting to inflation, but if Europe doesn’t tighten they will find their bond market in a similar position to the US a couple of weeks ago.

Published in Bonds: Total Market
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
Wednesday, 20 April 2022 19:45

Goldman Sachs Flashing Recession Warning

Goldman raised the odds of a recession to over one-third in the next two years. The tightening cycle and rate hikes are causing waves in markets and the Fed could bump the Federal Funds Rate eight times this year. Overall economic health in the G10 helps mitigate the possibility of a recession, but it's still a possibility. Experts are saying that the Fed has a narrow path for a soft landing if they want inflation to come down to 2% and keep unemployment from rising. There are signs that the economy is beginning to weaken as consumer confidence is wavering. Still, the stock market doesn’t seem to pricing in a recession, however, the experts on Wallstreet and financial services are beginning to prepare.


Finsum: Look to the yield curve for recession predictions its the best sign and its beginning to warn investors.

Published in Eq: 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
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