Displaying items by tag: Treasuries

Thursday, 08 October 2020 15:56

A Tail Risk Event in Fixed Income Has Just Started

(New York)

Investors need to keep a very sharp eye on the bond market. The yield curve is steepening without any associated rise in economic activity. The reason why has to do with the election. Biden has been rising in the polls, and investors have been increasingly betting he will emerge victorious as part of a blue sweep. If that happens, it is assumed the US would issue a great deal more debt to fund stimulus packages. This means there would be significantly more Treasury bond supply than at present, and potentially calls into question the credit of the US government. As evidence of this trend, the spread between 5- and 30-year Treasuries just hit its largest since 2016.


FINSUM: This is a potential black swan event that no one has seen coming. The election seemed like it would be a dead heat through election day, but if the needle moves more towards Biden, the whole picture for fixed income will change.

Published in Bonds: Treasuries
Wednesday, 20 May 2020 10:53

The Bond Market is Shouting Caution

(New York)

The bond market is usually ahead of the stock market in predicting and reacting to the economy. It seems to be doing so again. While stocks have had a huge run higher, bond yields have largely been stuck at very low levels. The ultra-low yields of around 0.7% on the ten-year Treasury mean that bond investors see a long, hard, recovery looming and many years of continued aggressive monetary stimulus by the Fed.


FINSUM: Stocks seemed to have gotten a dose of realism over the last two weeks, but yields may be more reflective of the difficulty of the recovery to come.

Published in Bonds: Treasuries
Friday, 08 May 2020 10:13

BlackRock Says it is Time to Go Risk-On

(New York)

One of the aspects of this bear market that has really alarmed investors is the speed with which the market has rallied from its lows. Huge gains of well over 35% have shocked investors into feeling like indexes are bound to fall again. In some sense that sentiment makes sense since it has happened before, such as in the dotcom bubble. However, according to BlackRock, it is absolutely time to go risk-on, but with a twist. The asset manager says that sovereign bonds have very little upside or protection to offer right now, so instead investors should put their capital into credit and higher-quality equities. “Over the next six to 12 months, we favor credit over equities given bondholders’ preferential claim on corporate cash flows and prefer an up-in-quality stance in equities”.


FINSUM: We particularly like the argument about sovereign bonds not offer much right now. With central banks already at their zero lower bound and sovereigns priced very highly, there is just not much to gain and plenty to lose.

Published in Bonds: IG
Tuesday, 24 March 2020 12:40

Markets are “Broken”, Here’s Why

(New York)

Any investor cannot help but have noticed very unusual movements in markets over the last couple of weeks. In particular, Treasury bonds have been behaving very oddly. After yields predictably plunged alongside stocks a couple of weeks ago, there have been abrupt movements higher, with 10-year yields rising around 90 basis points (from 0.4% to 1.3%) in just a few days. Even now, when yields would presumably be nearing zero, they have been see-sawing and are still near 1%. The reason why appears to be panic-selling in an effort to get cash in any way possibly. In particular, large investors need to meet redemptions in other areas of credit, which are much less liquid, and since getting cash for their holdings there is impossible right now, they are selling Treasury holdings to get the cash to meet redemptions.


FINSUM: This is not unlike selling your valuables to meet mortgage payments. It makes sense, but it is a worrying sign and a symptom of how dire the market has gotten.

Published in Bonds: Treasuries
Tuesday, 10 March 2020 14:25

Yields Surge on Big Stimulus Hopes

(New York)

The bond market responded in a big way to President’s Trump’s hints at stimulus today with yields rising sharply. Markets have been hoping central banks may step in to support the economy, and Trump himself has made some bold hints about what may be in store. In particular, the President is favoring a potentially major tax cut to help support the economy. More specifically, Trump is focusing on payroll tax cuts among other options. However, some news outlets say the administration is far from enacting specific policies.


FINSUM: Our bet is Trump will try to unleash a big tax cut combined with other stimulus measures. He knows he needs to keep the economy afloat to get re-elected, so support measures seem very likely.

Published in Bonds: Treasuries
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