Displaying items by tag: yields

Thursday, 01 April 2021 17:52

Are Munis Under Threat in Biden’s Tax Package?

(Washington)

Investors may fear it, but we all know the big tax package is coming. Personal income tax rates, and likely business rates will rise. State and local taxes will be affected too. So one big question is how this will pay out for muni bonds. The answer, at least according to Franklin Templeton, is that munis are going to do great. The reason why could not be simpler: with tax rates rising, the relative value of munis rises since their tax exempt status because relatively more valuable.


FINSUM: Anxiety about the forthcoming tax plan is rising, and that is a great tailwind for munis. Couple that with the fact that Democrats are more in favor of federal support for municipalities and you have a great combination for muni bonds.

Published in Bonds: Munis

(New York)

Bond yields are on the rise, from long-term Treasuries to corporate bonds. However, Ray Dalio, founder of Bridgewater, says…see the full story on our partner Magnifi’s site

Published in Bonds: Total Market

(New York)

Some analysts think that investment grade (IG) bonds might see some very rough times ahead. In fact, one analyst from Pavilion Global Markets says that IG bonds have “virtually no value proposition under any given economic scenario”. Think about the following package of information taken as a whole: 1. iShares iBoxx $ Investment Grade Corporate Bond ETF has lost 6.6% this year; 2. IG yields are well below 6.6%; 3. Investors have been pouring money in IG bond mutual funds and ETFs. So IG bonds are losing value much more quickly than they are yielding, which spells a recipe for disaster to some. According to the same analyst “be mindful of the potential for significant outflows in the days to come”.


FINSUM: We can’t say we agree here. While fixed income as a whole looks fragile right now, the losses have provided room for IG bonds to appreciate as the economy and earnings improve. We do not think it will be all bad news.

Published in Bonds: IG
Monday, 22 March 2021 16:59

The Great Migration Within Bonds

(New York)

There might be a great migration in the cards for bonds. While many have spoken of a broad migration into equities that occurred over the last year, a smaller scale change might be about to occur within bonds. Treasuries have been getting hammered, and corporate bonds are appearing increasingly attractive to investors for a number of reasons. Firstly, their durations tend to be much shorter, meaning they have significantly lower interest rate risk—crucial right now. And secondly, with the economy picking up, earnings and business health are looking brighter and brighter.


FINSUM: Aviva Investors thinks corporate bonds have a nice pathway to gain. While rates are working against corporate bonds, the fundamentals are strong. If yields finally stabilize under 2%, it is easy to imagine investors piling into corporate bonds as the recovery strengthens.

Published in Bonds: IG
Friday, 19 March 2021 16:59

How to Play Rising Inflation Risk

(New York)

The prospect for rising inflation has been terrifying the market, and investors need a way to play it. April gold futures peaked at $1750 on intraday trading after the recent Federal Reserve decision to leave the federal funds rate unchanged, and that tells investors something important: gold may be the way to go. Moreover, Powell said the fed funds rate would remain unchanged until 2023, even if economic news improved. The Fed even plans to tolerate higher than 2% inflation given inflation has averaged well below the Fed’s Target the past year. This was enough to spike gold prices as investors are now as concerned about future inflation as many investors see the commodity as a hedge. Treasury yield rises had many investors worried the Fed would preemptively tighten, and Gold was down before investors realized how committed the Fed was.


FINSUM: Spreads between inflation-indexed and nominal bonds (TIPS spreads) indicate that rising yields are driven by inflation risk. Gold is one of the most assured hedges against future Inflation.

Published in Comm: Precious
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