Displaying items by tag: rates

(Washington)

Investors have been unsure of how the Fed would handle the trade war. Recent minutes from the Fed showed no indication that the central bank was thinking of cutting rates even though the market expects it. However, the silence has finally been broken as Fed chairman Powell announced yesterday that the trade war is on the list of the Fed’s concerns and that the central bank would act to protect the economy from its fallout. In his own words, Powell said the Fed would “act as appropriate to sustain the expansion”.

FINSUM: We took this as a pretty strong affirmation that the Fed is watching the trade war situation closely and is ready to act. Markets liked it.

(New York)

There has been a lot of speculation about whether there may be rate cuts this year. The Fed has been less than clear about this possibility, mostly indicating it just wants to stay put for the year. The Treasury market has been very vocal, however, with investors clearly indicating they expect rate cuts over the second half of the year. Now JP Morgan is weighing in, saying that the Fed is likely to cut rates twice by the end of the year, a prediction which precisely matches what markets are calling for. The ten-year Treasury yield fell below 2.1% recently.

FINSUM: We think the cut will come as a function of how the trade war plays out. Trump is certainly pushing the Fed’s hand, but we expect the central bank will remain “data dependent”.

(New York)

REITs are having an outstanding year. The FTSE Nareit Equity REITs Index is up almost 18% this year, well ahead of the market’s 12% gain. With the direction of rates and yields, it is easy to understand why. The question is which are the best REITs, which is not always easy to answer. Here are five of the best performers so far this year: DFA Real Estate Securities I (DFREX), Neuberger Berman Real Estate (NREAX), Principal Real Estate Securities (PRRAX), Cohen & Steers Real Estate Securities (PRRAX), DWS RREEF Real Estate Securities (RRRAX).

FINSUM: We like REITs right now. They have solid yields (e.g. 3%), and given the likely direction of rates, stand do well in terms of price appreciation.

(Dallas)

If you are looking for for a safe place to earn some yield in munis, look to Texas. Specifically, the Texas Permanent School Fund, a heavy weight in the muni market that backs $80 bn of debt. The fund has a triple A rating from multiple agencies and is one of the safest bets in the market. The bonds average a 1.9% yield, which is quite strong for the muni market, especially considering the average triple A only yields 1.7%.

FINSUM: This seems like a very strong credit, and one with a surprisingly good relative yield.

(New York)

JP Morgan thinks bonds are the best of a bad bunch. That is essentially what JP Morgan is saying about the asset class. The investment bank says that bonds are not in a bubble, though there are no good discounts either. JP Morgan, which is the world’s largest underwriter of bonds, says that despite the 100 bp dive in Treasury yields, bonds are not a bubble ready to burst. The bank thinks the Fed will stay on hold, not cut, until the end of 2020 given the increased pressure the trade war will put on the economy.

FINSUM: Despite the speed with which the bond market has seen yields fall, it is relatively hard to imagine them rising back to over 3% any time soon (even if China dumps its holdings). Thus, we generally agree with JP Morgan’s assessment.