Displaying items by tag: rates

Friday, 18 May 2018 10:43

Will This Kill the US Real Estate Market?

(Los Angeles)

US real estate has been humming along quite nicely for several years. The market has been so steady as to be considered in a goldilocks period. Rates were low, lending standards slowly slipped, and the market kept rolling with high demand. However, that period may finally now have come to an end as mortgage rates are rising quickly. Mortgage rates just hit a seven year high, which could mean demand for housing softens as borrowers are unwilling to pay higher rates. The average rate for a 30-year fixed mortgage now sits at 4.61%. Rates bottomed in 2012 at an average rate of 3.31%.


FINSUM: We think this is definitely going to have an effect on mortgage demand, especially on mortgages in urban areas, where amounts tend to be larger.

Published in Eq: Total Market
Thursday, 17 May 2018 10:40

The Best Places to Park Cash

(New York)

Stock markets are moving sideways, bond yields are shooting higher, and there is a great deal of uncertainty about the direction of the economy. Investors are understandably nervous. With that in mind, Barron’s has published a piece outlining the best places to park your or your clients’ cash. The answer is short-term bond funds, which are almost all yielding over 2% and have significant insulation from losses related to rate rises. For instance, the Vanguard Short term bond fund is yielding 2.76% and has only lost less than 1% this year despite rises in yields. ETFs that track floating rate bonds are also a good idea given the environment. For example, the iShares Floating Rate Bond (FLOT), which yields 2.21%.


FINSUM: Short-term bond yields are finally significantly higher than equity yields, which means there is at last a good, and likely less risky, alternative to stocks.

Published in Bonds: Total Market
Thursday, 17 May 2018 10:37

The Stock Market Has a New Boss

(New York)

Equity investors need to accept a new truth, says the Wall Street Journal—that earnings and fundamentals have given way to a new “boss” of the markets. Instead of stocks trading based on the performance of companies, they are now trading almost squarely on movements in rates. Recent equity performance could not have made the new reality more clear—companies saw outstanding earnings performance, yet stocks have simply muddled through. The reason why—yields have been moving higher on Treasury bonds.


FINSUM: The current obsession with yields reminds us of the 2014-2015 mode for stocks, when everyone was tied up on whether the Fed would start hiking or not.

Published in Eq: Large Cap
Thursday, 10 May 2018 11:25

Why Bonds are Poised to Gain

(New York)

There has been a lot of fear about bonds lately. Higher inflation readings, a more hawkish Fed, and 3% Treasury yields have gotten investors nervous. However, bonds might be in for some big gains, especially Treasuries. The reason why is that there is a huge pile of short positons held by hedge funds who are betting against Treasuries. Yet, yields have been stubborn over the last couple of weeks and now it appears the positon might be broken by a strong short squeeze that would send prices higher.


FINSUM: We had not paid much attention to this, but given the weak US inflation reading that has just been released, this may play out very soon.

Published in Bonds: Total Market
Wednesday, 09 May 2018 11:18

Why You Shouldn’t Worry About Higher Yields

(New York)

The market has become very fixated on higher rates and yields, with every investor nervous it will cause losses in their stock and bond portfolios. However, one Wall Streeter is saying fears are overblown, especially as it concerns how stocks lose on account of bonds. The logic is that stock P/E ratios never fully took account of ultra-low yields, so in effect, there is a cushion in stock prices against rising yields. Therefore, yields crossing 3% won’t necessarily cause any losses.


FINSUM: This is the “priced-in” logic of stock prices. We must say we do not agree. This kind of argument assumes that investors are being rational and have long memories, as well being agnostic of short-term changes in priority. We do not think the market is this impervious to fear.

Published in Bonds: Total Market

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