Displaying items by tag: rates

(New York)

Investors need to be careful, real estate looks likely to take a pounding in the coming months. While all the focus on the big jump in yields has been on how it has impacted bonds and stocks, one of the big risk areas is real estate. Unlike other parts of the economy and markets, real estate has been teetering for some time, with months of weak performance. REITs and real estate stocks have been selling off strongly over the last couple of days and the reason is clear—the last thing the already weak housing market needs is higher borrowing costs.

FINSUM: We think the move higher in rates and yields could spell a significant downturn for real estate. Prices are so high and demand is already starting to dry up, so higher yields may have a further dampening effect.

(New York)

Fighting the impact of rising rates on one’s portfolio is likely a primary goal of many advisors and investors right now, so we will be running a series of stories on the topic. For instance, Goldman Sachs has just released a new ETF in the area. In what is being called “smart beta exposure to bond markets”, Goldman has launched the Goldman Sachs Access Inflation Protected US Bond ETF (GTIP). The fund selectively chooses Treasury Inflation Protected Securities and costs 0.12% per year. “TIPS present an attractive diversification opportunity for many investors with relatively low correlations to other major asset classes”, says Goldman.

FINSUM: TIPS seem like a good investment right now, but we wonder how this will perform versus other rate hedged ETFs, most of which seem to have a different angle.. On the plus side, it is quite low cost.

(New York)

As almost all investors are aware at this point, global markets, including the US, saw huge moves in yields yesterday. Trading of the 10-year US Treasury bonds saw yields as high as 3.22% today, sharply higher than just a week ago. The Dollar also soared. This led to a big selloff in stocks as well as major losses across emerging markets and US corporate bonds.

FINSUM: In our view, there are two ways to interpret this big move higher in yields. One is that it was just reactionary to new US economic data and that yields will stall again. The other is that the market has finally woken up to the reality that higher rates and yields are a certainty and that expectations need to be reset. We favor the latter view and think this could be a paradigm-shifting move that finally sparks losses in bonds and rate-sensitive stocks.

(New York)

There has been a lot of speculation about rising rates and whether the Fed might increase the pace of its hikes. However, until yesterday, that fear had not really exhibited itself in yields. Now everything is changed. Accordingly, Barron’s has run a piece highlighting two funds to help protect your portfolio from rising rates. One is the Loomis Sayles Bond fund (LSBRX) and the other is the Oakmark Equity & Income Fund (OAKBX). The former takes an all-bond approach to offset rate rises by loading up on shorter maturities. The Oakmark fund usually holds around 60% equities, with a mix of bonds making up the rest.

FINSUM: These are interesting choices. Whether to buy passive or active funds to offset rate hikes right now has to be the advisor’s choice. ETFs and mutual funds can both be good options depending on the approach one wants to take.

(New York)

The big global selloff in sovereign bonds, which included US treasury bonds, has spilled over into the corporate bond sector in a big way. One of the biggest ETFs tracking US corporate bonds fell to 2013 lows today. “The jump in rates is inevitably detrimental to long-duration credit performance, with LQD a classic example”, said an analyst, citing BlackRock’s popular LQD corporate bond ETF. While corporate earnings look healthy, the big issue is that investment grade bonds tend to have higher durations than high yield, which means they suffer more when rates rise.

FINSUM: We wonder how much this jump in yields might start to really affect the giant mass of BBB bonds. This kind of move in yields could prove a tipping point.