Displaying items by tag: rates

Monday, 28 February 2022 17:22

A Good Way to Hedge Interest Rate Risk

Fixed-income investors are in the doldrums when it comes to today’s ultra low yield environment. Guaranteed income from CDs is just not high enough, and while bonds may be secure their value is at a valley. Laddering annuities is maybe the best strategy, but the questions are under duration. In a flat yield curve going for a short duration makes sense, and as the yield curve steepens moving to long-term contracts is more attractive. In today’s interest rate market, the goldilocks spot is around 5-years, it is a much higher return than shorter-term annuities and longer-term contracts tie your money up without much more of a return boost. The best part is you can integrate this annuity laddering strategy into IRAs and take advantage of all the tax solutions they bring to the table.


Finsum: It's critical to ladder the right duration depending on the current rate environment and given how much interest rate risk there is today it's more important than ever to be precise.

Published in Bonds: Total Market
Tuesday, 15 February 2022 19:17

There is No Risk Greater Than the Fed

Inflation surged to a nearly 40-year record high as the CPI index annual inflation pushed to 7.5%. This number was well above expectations and even core inflations 6% posting came in higher than consensus. In response, the Fed is going to tighten and do so significantly as regional Fed Presidents are expecting a 1% rise in the Fed Funds rate. This is a seriously hawkish turn and given there are only 3 more FOMC meetings with projections that would imply a 50-basis point rate hike possibility. The fed hasn’t hiked rates that quickly since the turn of the century. Investors are saying the Fed will want to hike by 50-basis points to keep its credibility.


Finsum: Hikes that steep could destroy the record recovery the US has had, it could lead to major windfalls in equities markets.

Published in Bonds: Treasuries
Thursday, 10 February 2022 19:05

Ultra Short Duration Bond ETFs Get Huge Surge

More so than inflation, interest rate risk is the biggest factor in bond markets. If the Fed hikes and Yields rise then that will only lower the value of many bond ETFs. In response, many investors have turned to shorter-duration fixed income. However, the latest surge is off the charts. Lots of money is flowing into ultra-short cash like ETFs with the lowest duration treasuries. Investors are offloading even medium-duration treasuries in the five-three year window. PIMCO’s MINT saw almost $900 million in inflows setting a record week for the fund. Investors are just looking to store capital in the midst of all the interest rate risk in the economy right now.


FINSUM: It's unclear if one rate hike or two will send yields surging high enough, now might be the time to hold medium duration debt as a lot of the risk could be priced in.

Published in Bonds: Total Market
Monday, 07 February 2022 20:22

Goldman Says This is Causing the Market Turmoil

Quantitative easing was the process of flooding the market with money in exchange for buying up long-term government debt and MBS; quantitative tightening was coined by Citigroup in order to describe the unwinding of this process. Goldman Sachs says this is causing increased volatility and sapping liquidity out of the treasury market. This QT could come with an abundance of arbitrage opportunities particularly in U.S. interest rate markets. Additionally, Goldman says QT will widen the gaps in new and old securities and narrow treasury yields and swap rates. F


INSUM: The treasury market is ripe for turmoil with the upcoming rate hike in March.

Published in Eq: Large Cap
Friday, 28 January 2022 14:21

Why It’s Time to Invest in Energy

Energy stocks went through a long, rough period leading into 2021. Since 2014, the whole sector has been maligned by low prices and sluggish demand. Renewable energy had stolen a lot of attention and funding and the traditional energy sector languished. However, a unique set of economic circumstances means it may be the right time to get back into energy. Oil prices have been rising strongly (a good inflation hedge), which is a nice catalyst, but almost more importantly, higher interest rates—which are clearly on the horizon—are a big headwind for renewables. Renewable energy projects take a great deal of financing and a long time to set up, which means higher rates increase costs and slow down financings.


FINSUM: Energy seems to be getting back in vogue, that said, the rise of ESG standards in debt financing might mean traditional energy projects also suffer.

Published in Eq: Energy
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