Displaying items by tag: fed

Thursday, 21 September 2023 03:44

A Notorious Treasury Auction

For Bloomberg, Ye Xie covers the aftermath of a disastrous Treasury auction for buyers. A little less than 3 and a half years ago, the world and fixed income markets were in a much different place due to the pandemic and the Fed’s aggressive efforts to flood the market with liquidity. At the time, the 30-year Treasury was auctioned off at a yield of 1.2%, while it now fetches nearly 4.5%.

Thus, buyers of the 30Y have taken a huge loss. In recent weeks, it’s traded around fifty cents on the dollar. Typically, this would mean that holders are concerned about default risk, but this is not the case. Instead, the price is so low because buyers have to be sufficiently compensated given that they can get higher levels of income in so many places. 

Simply put, it’s an indication that these buyers essentially top-ticked the Treasury market. Longer-term Treasuries declined by nearly 30% in 2022 and have added to these losses this year as the Fed has remained hawkish for longer than expected. The holders of this specific note include the Fed, ETFs, pensions, and insurance companies. 


Finsum: The yield on the 30 year Treasury fell as low as 0.7% during the depths of the pandemic. Now, they are close to 4.5%. 

 

Published in Wealth Management
Wednesday, 20 September 2023 10:19

Moment Raises $17 Million to Disrupt Bond Trading

Over the last decades, there has been a constant trend in equities trading towards lower transaction costs, increased transparency, fractionalization which have made the markets cheaper and more accessible for everyone. This is only beginning to happen in bond markets where the majority of trading still takes place over the counter.

One startup, Moment, is taking on the challenge as it’s raising $17 million in a Series A round led by Andreessen Horowitz. It’s expected to be a major opportunity especially as interest in trading bonds has increased amid the spike in rates since last year. 

Currently, the major electronic venues for trading bonds are MarketAxess and Tradeweb. Moment’s API seeks to pull data from all these fragmented markets and liquidity pools and provides execution services in addition to analytics and portfolio management tools. The company plans to cover all types of fixed income investments including municipal bonds, Treasuries, and corporate debt. 

The company believes it will be able to be the premier platform for retail investors when it comes to fixed income trading. It sees upside opportunity in that only 3% of US households own individual bonds, while 23% of households own individual equities. 


Finsum: Interest and activity in fixed income has soared along with rates. Moment, a startup backed by Andreesen Horowitz, is looking to build a platform for retail trading of bonds.

Published in Wealth Management
Friday, 15 September 2023 11:21

Oil Powers Above $90 for First Time in 2023

The economy and financial markets have faced potent challenges in 2023. These include concerns of an imminent recession, a hawkish Federal Reserve, stubbornly high inflation, a sputtering banking system, etc. Unlike last year, the price of oil hasn’t been a major headwind as it’s traded between $60 and $70 per barrel for most of the year. 

 

The situation is now changing as the front month contract for WTI crude oil settled above $90 for the first time this year. Higher oil prices are a negative for the economy and markets as it detracts from consumer spending and contributes to inflationary pressures. Until inflationary pressures fully recede, there is unlikely to be a change in Fed policy. 

 

So while there has been constructive news on the finaltion front regarding real estate and the labor market, the mild tailwind from lower oil prices is now becoming a headwind. For oil, the major catalyst is on the supply front as OPEC producers have been cutting production in anticipation of an economic slowdown. 

 

But, demand has been less impaired than anticipated even accounting for the weakening Chinese economy. Another factor supporting demand is that the US is a buyer of crude oil given the need to restock the strategic petroleum reserve. 


Finsum: Crude oil prices moved past $90 per barrel for the first time in 2023. Here are some of the reasons behind its recent strength.

 

Published in Wealth Management
Friday, 15 September 2023 11:19

Bonds Rally Despite Hotter Than Expected CPI

The Bureau of Labor Statistics released the CPI report for August which showed a 3.7% increase in inflation which was above expectations of 3.6%. Core CPI came in at 4.3% which was in line with expectations.

 

It marks the third straight monthly increase in inflation as July saw CPI at 3.2%. Some of the factors contributing to this were a 5.6% increase in energy prices and a 7.3% increase in owners-equivalent rent. 

 

Initially, Treasuries weakened on the news as it incrementally increased the odds of another hike by the Federal Reserve. However, the fixed income complex was quickly bid up on the drop as market participants seem willing to look past the hotter than expected inflation data.

 

Two major components of the inflation report - housing and wages - are softening which spells relief for the market. Rents are already dropping in key markets, while recent labor market data shows that unemployment is ticking higher. Much of this data will take time to be reflected in the CPI. Thus, investors are willing to use the weakness to add to fixed income. 


Finsum: Fixed income was bid up despite a hotter than expected CPI report. This seems to be because investors are increasingly confident that inflationary pressures will continue to recede.

 

Published in Wealth Management
Wednesday, 13 September 2023 16:07

Family Offices Increasing Fixed Income Allocation: Citi

Citigroup conducted a survey of 268 family offices to gather information on their positioning and thoughts on the current market. Overall, the family offices decreased exposure to equities while more than half increased their fixed income allocations. According to Citigroup, it was the most significant change in family office positioning since 2020. 

 

The bigger trend is that family offices are becoming more conservative given the challenging economic environment. In terms of their biggest concerns, they identify inflation, a hawkish Federal Reserve, and a spike in geopolitical tensions specifically around the US and China.

 

Currently, the average family office has 16% in fixed income, 12% in cash, and 22% in equities. Even within these allocations, they are focusing on areas with less risk. For equities, it means companies in traditional industries with positive cash flow and attractive valuations. For fixed income, it means a bias towards higher credit quality and shorter duration. 

 

In total, these family offices that were surveyed control more than $1 trillion in assets. Specifically, the family offices that are adding fixed income exposure have a cumulative total of $568 billion in assets. 


Finsum: Citigroup surveyed 268 family offices to find out their thoughts on the current market. More than half are increasing fixed income allocation and selling equities. 

 

 

Published in Wealth Management
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