Bonds: Total Market

(New York)

Investors beware. US equity prices now seem to be entirely at the mercy of bond yields. Stocks have consistently struggled as yields have moved higher, and today Treasury yields seem to have broken an important threshold. Treasuries traded as high as 3.13% this morning, the highest level in seven years. Stock markets unsurprisingly fell. The markets were initially spooked by a solid US retail sales report that seemed to indicate the Fed might hike more aggressively than expected.

FINSUM: Yields definitely seem to have a strongly upward trend at the moment and have definitively broken out of that 2.9% band they had been locked in for a few weeks. Next stop 3.50%?

(New York)

Stock markets are moving sideways, bond yields are shooting higher, and there is a great deal of uncertainty about the direction of the economy. Investors are understandably nervous. With that in mind, Barron’s has published a piece outlining the best places to park your or your clients’ cash. The answer is short-term bond funds, which are almost all yielding over 2% and have significant insulation from losses related to rate rises. For instance, the Vanguard Short term bond fund is yielding 2.76% and has only lost less than 1% this year despite rises in yields. ETFs that track floating rate bonds are also a good idea given the environment. For example, the iShares Floating Rate Bond (FLOT), which yields 2.21%.

FINSUM: Short-term bond yields are finally significantly higher than equity yields, which means there is at last a good, and likely less risky, alternative to stocks.

(New York)

The long-time biggest bond shop on Wall Street (actually they are in California) has just put out a stark warning to investors—ten-year Treasuries are going to hit 3.5% in the near term. The manager thinks yields will make it to that level this year but then stall. Above 3.5%, they say, yields would have a detrimental effect on growth and that as yields rise investors will be moving their money into different asset classes.

FINSUM: A 3.5% yield on the ten-year would be a pretty attractive proposition to many, and it seems likely that given how that figure would be simultaneously appealing and a warning of poor future growth, investors will likely move out of equities.

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