Displaying items by tag: yields

Thursday, 10 January 2019 08:34

The Fed’s Tough Task

(Washington)

The Fed is facing a herculean task, argues the Wall Street Journal. That task is to keep inflation at its target, while also steering a moderation in growth. In other words, how does the Fed keep inflation in check without causing a recession? One way to consider this challenge is to think about how the Fed may approach it: “focus more on the domestic economy and keep nudging interest rates higher to combat inflationary concerns, or pay greater attention to stresses abroad and in the markets, and hold rates steady or even nudge them lower”, says the WSJ.


FINSUM: We think this is not as hard as rumored. Our view is that the Fed should freeze rate hikes and broadcast that a long-term freeze is the plan. That should put the economy (and markets) on solid footing, and keep things from getting too out of hand.

Published in Bonds: Total Market
Wednesday, 02 January 2019 13:32

Fed to Cut Rates?

(Washington)

If that headline sounds like relief to your ears, read further. While there are no clear signs out of the Fed yet (other than increasingly dovish talk), new data is showing that the Fed may cut rates in 2019. The forward spread shows that traders are anticipating a rate cut at the beginning of the year. Two-year Treasuries have seen their yields slip below one-years’. This is the first time this has happened since 2008. According to a market strategist at Pimco, “This is a crystal ball, it’s telling you about the future and what the market thinks of the Fed and what it will do with its policy rate”.


FINSUM: We don’t think the Fed will cut in the first quarter unless something more drastic happens, but we are quite sure they won’t hike.

Published in Bonds: Total Market
Friday, 28 December 2018 12:49

Investors are Fleeing Corporate Debt

(New York)

While the stock market is getting all of the attention, the bond market is experiencing a lot of turbulence as well. The riskiest corners of the debt market, including junk bonds and loans, are on pace for their worst month since the US downgrade in August 2011. High yield’s spread to Treasuries has surged a whopping 110 basis points since the start of the month, and unlike in stocks, there aren’t signs of a rebound. The average yield on the index is 8%.


FINSUM: It is reasonable to be nervous about credit right now given the huge volume of issuance in recent years and the pending threat of a recession and accompanying earnings slowdown.

Published in Bonds: High Yield
Friday, 28 December 2018 12:48

Why Income Stocks Will Gain in 2019

(New York)

2018 was a tough year for most income investors. Rates rose considerably, making the dividend yield of the market look rather poor compared to many other short-term assets. Strong corporate dividend hikes helped, but the big question is what will happen in 2019. Most analysts think the pace of dividend hikes will slow, but so will the pace of rate hikes, meaning that income stocks seem likely to do well. Dividends rose 9% this year and are expected to rise 6% in 2019.


FINSUM: Goldman says that financial firms will raise their dividends by 16% in 2019, more than any other sector. Perhaps that is a good place to look.

Published in Eq: Dividends
Thursday, 27 December 2018 13:35

There is No Bond Crisis Brewing

(New York)

The market has been very worried about a potential bond market meltdown. Both investment grade and high yield debt have seen major losses lately as fears have mounted about high corporate debt heading into a possible recession and downturn in earnings. One of the big worries is that there will be a surge in BBB (the lowest rung of investment grade) debt that falls into junk status. However, Bank of America is more sanguine, arguing that growth is solid and companies have actually been issuing much less debt, and will continue to do so. Their view is that companies are in a much sounder financial position than before the last crisis.


FINSUM: The debt gorge that happened over the last several years is inevitably going to have consequences, and we think BAML is way too relaxed about the risks.

Published in Bonds: Total Market
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