Displaying items by tag: bonds

China’s giant real estate group Evergrande Real Estate Group is in hot water. While they may be China’s second-largest real estate holding company, they are the world’s most indebted as their balance sheet carries an excess of $300 billion in liabilities. Despite this, some of the most prominent investment firms such as BlackRock, UBS, and HSBC Holdings have all bought up their debt. Evergrande’s bonds are trading at 25 cents on the dollar. BlackRock, for example, has increased its holdings from 12.2 million units to 43.5 million YTD and is now nearly 1% of its portfolio. Evergrande is taking measures like discounting apartments, parking spaces, or retail property to pay back its debt as notes are beginning to reach their maturity. Many investors are expecting Chinese authorities to step in to accommodate the debt by either rolling it over or taking other measures.

FINSUM: There is certainly safer debt to hold, but many investment firms see Evergrande as a buy and a risk worth taking because it may be too big to fail.

(New York)

Environmental, social, and governance investing is reaching a new market just about every month these days, but ESG blew past a huge one this week. Socially conscious investing capped a quarter of all new debt sales. Between corporations and countries, the ESG movement pushed out $391 billion in new debt this year. Companies like Enel SpA are leading the way in Italy, being pushed by the strong arm of European governments. The goal is to have Europe be a leader in climate change. However, investors are paying a premium to get ahold of the bonds. What many are calling ‘grenium’ is the excess being commanded by these socially conscious investments as practically everyone in the bond market is tracking ESG ratings.

FINSUM: Europe is a leader in the ESG movement, but its bond market might be a bit saturated. Look to the American or even emerging markets to get a piece of socially conscious bond investing.

(New York)

The bond market seems to have lost all touch with reality. Yields are extremely low, and given the more relaxed inflation reading this month, seem likely to stay pinned. Now consider this: European corporate debt real yields just turned negative. Yes, you are paying for the privilege of holding corporate debt. The ICE BofA index of European high-yield bonds is now at 2.34%, well below inflation.

FINSUM: Is there were ever a sign of a peak, this is it. Bond yields have nowhere to go but up, as there is no defensible logic that they could sustainably move lower. Unfortunately, it seems as though bonds and equity could move hand in hand, as the catalyst for big losses would be the Fed, which would trigger both asset classes.

(New York)

When you say bond legend, only one name likely comes to mind (let’s leave Gundlach out of this for a minute): Bill Gross. And old Bill always has an opinion, and this week it is a very strong one: “bonds are trash”. Bill says that bonds are now in the investment garbage can because Fed tapering in the first half of 2022 will likely cause a rise in Treasury yields from 1.3% now to 2% next year, causing an overall loss of around 3% over the next 12 months. According to Gross, “Cash has been trash for a long time but there are now new contenders for the investment garbage can. Intermediate to long-term bond funds are in that trash receptacle for sure”.

FINSUM: This is logically sound, but the timing is entirely dependent on the Fed.

(New York)

Morningstar has added a lot of coverage to their model portfolio universe this year. Earlier in 2021 they expanded their coverage of ratings to 1500 model portfolios, an increase of 50%. Of all those funds reported on, only two of them took home their coveted gold rating: the Vanguard CORE series and the BlackRock Target Allocation ETF. Vanguard was noted as having highly diversified index funds and rarely making portfolio changes. Other funds that got acclaim, such as their silver rating, include American Funds Growth & Income and the American Funds Tax Aware Growth & Income series.

FINSUM: The world of model portfolios has grown nearly as dizzying as that of ETFs so these Morningstar guides are a big help.