Displaying items by tag: rates

(New York)

If you are an investor looking for safe yields, look no further than this handful of high-yielding stocks. All three stocks presented here have yields over 5%. That level may prove a key defensive barrier, as shares with yields that lofty are less likely to be affected by rate rises. The three stocks are REIT EPR Properties (6.2% yield), healthcare company Welltower (5.2%), and property giant Brookfield Property Partners (6%+ yield).

FINSUM: Brookfield, in particular, seems like a good buy, as its business looks very strong and it is trading at a big discount versus the value of its real estate holdings.

(New York)

There has been a lot of focus, including both worry and skepticism, surrounding the potential inversion of the yield curve. The two and ten-year Treasury are now just 20 bp apart. Because yield curve inversions have been a very reliable indicator of recession, many are worried. However, some are skeptical that the current near-inversion means much because of how distorted long-term bond prices have become because of quantitative easing. The reality though, according to the FT, is that it doesn’t matter if long-term yields are artificially low. Because the market believes in the predictive power of inversions, companies, consumers, and investors will act as though we are headed into a recession, and thus create one in a self-fulfilling prophecy.

FINSUM: This is an interesting argument that relies strongly on the concept of herd mentality amongst investors. We tend to agree that an inversion may cause an adverse reaction in the economy and markets.

(Washington)

Investors may not realize it yet, but the Fed is in a quite pickle: damned if they keep hiking, damned if they don’t. In what is being dubbed a potential “Dollar doom loop”, the Fed might create a cycle of excessive Dollar strengthening if it keeps hiking. This may cause an overseas debt crisis as many foreign borrowers, especially EMs like Turkey, have issued excessive Dollar-denominated debt. This would in turn put stress on Europe. Additionally, the strong Dollar strengthening would start to hurt US corporate earnings and exports, in turn weakening the economy and possibly causing the Trump administration to move to artificially weaken the Dollar. That said, if the Fed quits hiking, it risks the economy, which is already hot, quickly overheating.

FINSUM: This situation is very real, but luckily we think there is a pretty simple solution—only proceed slowly with hikes. It should be enough to keep the economy in check (given inflation is not high), but not so much as to send the Dollar surging (imperiling foreign borrowers).

(New York)

Retail investors have often had trouble accessing the corporate bond markets. Bond are traded in $1,000 increments and usually move in multi-million Dollar transactions, putting the asset out of the reach of most (new corporate bond ETFs aside). However, there is an easier way to directly own bonds—so-called baby bonds, or bonds sold on stock exchanges like the NYSE in $25 increments. The total market size for the bonds is around $20 bn and the securities are usually senior unsecured. Issuers like them because they are callable after just five years. Frequently the bonds have higher yields than their convention counterparts. Finally, they pay interest four times a year rather than twice.

FINSUM: This is an interesting if niche asset class, but there is some appeal in the unique terms these “baby bonds” have. There are also some big name issuers like AT&T and eBay.

(New York)

The US real estate market has seen a string of bad news over the last few months, but many were hoping July housing starts would see a rebound. New data out shows that such a boost did not materialize, with housing starts underperforming expectations. The previous month’s reading was also downgraded by 13%. “Housing is the sole weak spot in the economy right now, and that’s probably not going to change”, according to one economist.

FINSUM: There is no near-term recovery in sight. We wonder if housing might be a leading indicator of a looming recession.