Displaying items by tag: yields

Tuesday, 28 November 2023 02:58

Generating Yield With Model Portfolios

Kevin Flanagan, WisdomTree’s Head of Fixed Income Strategy, and Scott Welch, the firm’s CIO of Model Portfolios, recently shared some insights on how model portfolios can be used to generate yield in the current environment. They see this as an opportune time to invest in fixed income especially given the differential between the S&P 500’s dividend yield and short and long-term rates. 

 

Currently, they see the Fed as wanting to remain hawkish, however the rise in long-term yields has also contributed to a tightening of monetary policy. In terms of inflation, they believe it has peaked but that the Fed is unlikely to begin cutting rates until the middle of 2024 due to ongoing tightness in the labor market. Additionally, they note that credit spreads have recently widened but nowhere near extreme levels.

 

Amid this environment, they recommend that investors stick to the short-end of the curve given the inverted yield curve and favor US Treasury floating rate notes which are the highest-yielding Treasuries. Within WisdomTree’s model portfolios, the firm has reduced its weight of high-yield debt while modestly boosting allocation to mortgage-backed securities.

 

Overall, they see fixed income as resuming its natural role - providing low-risk income and serving as a hedge against equities. 


Finsum: WisdomTree shared some insights on the current macro landscape, and how it’s positioning its model portfolio allocation to flourish in this environment. 

 

Published in Wealth Management
Tuesday, 07 November 2023 02:49

How Higher Rates Are Hurting Private Equity

Earlier this year, the Carlyle Group was close to completing a $15 billion deal to takeover healthcare software company Cotiviti at $15 billion. However, the deal fell apart as Carlyle was unable to raise $3 billion from investors due to the yield of 12% being nearly equivalent to the return on equity. 

 

At first, many speculated that this was a Carlyle issue, but in hindsight, it’s an indication of the pressures faced by the private equity industry amid the highest rates in decades. Many of the strategies employed by private equity managers are simply not viable in a world with higher interest rates. 

 

As flows into new funds have slowed and pressure to refinance, private equity firms have started borrowing against assets to make dividend payments, while others are shifting away from making interest payments in cash. 

 

The industry still has $2.5 trillion in cash, and many dealmakers believe there will be some attractive opportunities to capitalize upon. Still, others believe that operators will have to adapt to a new environment and can no longer rely on the tailwind of falling rates which lifted asset prices higher, while keeping financing costs low. 


Finsum: Private equity is struggling amid higher rates. Here are some of the ways. 

 

Published in Wealth Management

Over the past two weeks, Treasuries have been considered a safe haven for investors amid the current turmoil in the banking system. While Monday offered a quick respite as investors learned of the news that UBS is rescuing Credit Suisse in a $3.24 billion deal, yields are expected to move lower in the days and weeks ahead if the turmoil continues. Kelsey Berro, a portfolio manager in J.P. Morgan Asset Management’s global fixed-income group told Barron’s that “The direction for Treasury yields should be lower." She added that “This month’s bank-related volatility shows that high-quality bonds are working as a portfolio diversifier this year.” Rick Bensignor, managing partner of Bensignor Investment Strategies concurs. He told Barron’s that he thinks Treasury prices will go higher, pushing yields lower. He says that he “Can see the 10-year Treasury’s yield falling to 3.2% or even 3.1%, compared with 3.48% on Monday afternoon.” Bensignor expects that “There will be more banks that are going to let us know how much trouble they are in. It’s going to force people into the safety of the bond market.”


Finsum:While Monday offered a brief respite, treasuries yields are expected to move lower if the upheaval in the banking system continues, according to bond strategists.

Published in Bonds: Treasuries

Investors poured into U.S government bonds Monday after last week’s collapse of Silicon Valley Bank. This sent Treasury yields plunging. The 2-year Treasury yield was recently trading at 4.06%, down 100 basis points or a full percentage point, since Wednesday. This marks the largest three-day decline for the 2-yield since Oct. 22, 1987, when the yield fell 117 basis points. That move followed the October 19th, 1987 stock market crash, which is also known as “Black Monday.” The yield on the 10-year Treasury was down just under 20 basis points. Prices soared and yields fell after news of the collapse of Silicon Valley Bank. Regulators took over the bank on Friday after mass withdrawals on Thursday led to a bank run. Regulators announced on Sunday that they would guarantee Silicon Valley Bank’s depositors. With fears of contagion across the banking sector spiking, investors looked to government bonds for safety. Investors are also rethinking how aggressive the Federal Reserve will be with rate hikes after the bank’s collapse. This helped to send short-term yields lower. The Fed is meeting next week and was expected to raise rates for the ninth time since last March. However, Silicon Valley Bank’s collapse may change that. Goldman Sachs certainly thinks so. The investment bank no longer thinks the Fed will hike rates, citing “recent stress” in the financial sector.


Finsum:After Silicon Valley Bank’s recent collapse, fears of contagion across the banking sector spread, driving investors into Treasury bonds, which sent yields tumbling.

Published in Bonds: Total Market
Tuesday, 07 March 2023 05:29

Someone say bonds, James?

Is there a little something something between bonds and James Bond?

Well, bonds, at least, are expected back this year, according to schwab.com

James? Filming a movie somewhere. Yeah, yeah; unreliable as ever.

Thing is, in the aftermath of an extended period of low yields -- not to mention last year’s to eagerly forget price dip, three tries at what’s on the precipice of a comeback: returns in the fixed income market, according to the site.

So, why so upbeat about returns? It goes like this:

Both nominally and in reality, starting yields are the highest in years;

The bulk of the Fed tightening cycle has wrapped up; and

A deceleration of Inflation’s likely

Following a prolonged dry spell, the bond market’s replete with yields that – compared to other investments – are appealing. A portfolio consisting of bonds; and high quality at that, like Treasuries, can translate -- without an excessively long period – around 4% to 5%.

Bonds, explained Ted Stephenson, professor of Accounting and finance at George Brown College, continue to be part of a diversified investment portfolio – an indispensable one at that, according to usnews.com.

"Regardless of correlation, bonds have done well versus stocks in six out of seven historical recessions. Ultimately, the correlation between stocks and bonds is not as important as relative performance."

Published in Bonds: Total Market
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