Displaying items by tag: yields

(New York)

One of the big developments of this month is not just that stocks have been getting hammered, but that bonds are too. While yields have stagnated from their jump a couple weeks ago, bond funds are seeing major outflows. In fact, investors are withdrawing so much capital from bond funds that it is likely to be the worst month for outflows in the last three years. Through October 19th, investors had pulled almost $25 bn from mutual funds and ETFs that invest in bonds. The losses break 21 straight months of inflows.

FINSUM: A couple things to note here. Firstly, considering Treasuries started the year yielding 2.4% and are now at 3.13%, one month of outflows does not seem too bad. On the negative side, however, it is worrying that bonds are seeing major outflows at the same time as stocks are losing in a big way.

(New York)

Inflation is rising across the globe, including in the US. Perhaps more pressingly, the Fed seems absolutely intent on hiking rates as the economy continues to perform very strongly. With that in mind, profiting from rising rates, or at least insulating one’s portfolio, needs to become a priority. Accordingly, here are some ETFs to help: iShares Floating Rate Bond ETF (FLOT), the SPDR Blmbg Barclays Inv Grd Flt Rt ETF (FLRN), the ProShares High Yield—Interest Rate Hdgd (HYHG), the SPDR Portfolio Short Term Corp Bd ETF (SPSB), and the Vanguard Short-Term Corporate Bond ETF (VCSH).

FINSUM: The ProShares fund seems the most interesting of the lot as it invests in high yield bonds while shorting Treasuries to protect against rate hikes, all while delivering less rate sensitivity than regular short-term bonds.

(New York)

The market is doing what everyone hoped it would. Just as the big losses of the last few weeks saw both stocks and bonds falling at the same time, both markets are now rising in unison. Stocks rose strongly on Friday and are up on positive news out of China today, while bond yields are also falling. China had its biggest trading day in three years as the government announced it would support the economy following the slowest economy growth in nine-years.

FINSUM: One thing to watch in Treasuries is that there is such a supply of them right now that demand itself is starting to negatively affect the bonds. Therefore, it is not just the Fed and rates weighing on Treasuries, but the sheer volume that the market is having trouble consuming.

(New York)

One of the questions that not many are covering is how preferred stock will behave as interest rates rise. Preferreds have been seeing their dividend yields rise as investors have shed Treasuries and exited some preferred-focused ETFs. Some preferreds from prominent companies like JP Morgan and Bank of America are yielding 6%. The largest preferred ETF, PFF, currently yields 5.8%. “We’re incredibly constructive on the market now”, says a preferred fund manager at Nuveen.

FINSUM: Remember that preferreds have a major credit component to them and that issuers are not obligated to pay dividends like they are on bonds. However, corporations take doing so very seriously, which means you can often get junk-like yields from good companies, all with significantly less risk. That said, rates rising will probably spark some further losses.

(New York)

Barron’s ran an interesting article today chronicling the market views of famed investor Leon Cooperman. The legendary hedge fund manager argues that investors should stay away from bonds, but that stocks are “fundamentally cheap”. “My world is cash and stocks … I think bonds are the bubble”, says Cooperman. He argues that a big downturn in stocks is not in the cards because the economy “if anything, is too strong”.

FINSUM: This argument makes sense, bonds do seem overvalued. However, what if stocks and bonds are too pricey? That seems logical too.