Displaying items by tag: yields

Monday, 27 August 2018 08:43

The Easiest Way to Buy Bonds

(New York)

Retail investors have often had trouble accessing the corporate bond markets. Bond are traded in $1,000 increments and usually move in multi-million Dollar transactions, putting the asset out of the reach of most (new corporate bond ETFs aside). However, there is an easier way to directly own bonds—so-called baby bonds, or bonds sold on stock exchanges like the NYSE in $25 increments. The total market size for the bonds is around $20 bn and the securities are usually senior unsecured. Issuers like them because they are callable after just five years. Frequently the bonds have higher yields than their convention counterparts. Finally, they pay interest four times a year rather than twice.


FINSUM: This is an interesting if niche asset class, but there is some appeal in the unique terms these “baby bonds” have. There are also some big name issuers like AT&T and eBay.

Published in Bonds: Total Market
Thursday, 23 August 2018 08:49

Treasuries Look Like a Great Bet

(New York)

One of Wall Street’s favorite trades has gone down the tubes this year, and for a classic reason. One of the hottest trades of this year has been to short ten-year Treasury bonds. Many institutional money managers believed that the bonds would see their yields rise and prices fall as the Fed raised rates and the US continued to grow at a quick pace. However, the opposite has happened recently, and ten-year Treasury bonds have seen their yields fall from well over 3% to just 2.83%. The reason why is a short squeeze. Short interest in the bonds rose from a net short position of around 75,000 futures contracts at the beginning of the year to almost 700,000 now.


FINSUM: We think there are a lot more factors keeping yields low than a short squeeze, but it is definitely a considerable component.

Published in Bonds: Total Market
Thursday, 23 August 2018 08:47

Why Munis Look Strong

(New York)

When the Republican tax reform package came out last year, there were fears that the changes could cause weakness in the muni market. However, while those potential long-term challenges remain, the reality is that the tax changes have helped the muni market considerably. The reason why is that the lack of SALT deductions means that many more investors have a strong inventive to buy muni bonds. This has kept yields low and demand robust, as for a high income couple in states like New York, a local muni bond yielding 3% is equivalent to a taxable corporate bond yielding over 6%.


FINSUM: Given the way that the new tax package heavily incentivizes muni income, we expect demand and prices to remain robust.

Published in Bonds: Total Market
Tuesday, 21 August 2018 09:17

The Best Income Ideas

(New York)

Advisors looking for good sources of income for clients should check out this piece, which is comprised of actual advisor ideas. Income is a tricky question at the moment, as one needs to preserve short-term income but also protect against rising interest rate risk. One key point is to focus on total return, or harvesting income not just from coupons and dividends but from portfolio gains too. While reaching for good yields in bonds can be very risky at the moment, considering sticking to traditional short-term bonds, but laddering their maturities from 1 to 5 years. Once you have that in place consider adding some higher-yielding options, like high yield municipals. MLPs are another good potential option given how strong the oil market is.


FINSUM: This is a nice range of specific ideas from other advisors. We favor short-term bonds for income right now, as yields are solid and interest rate risk is comparatively lower.

Published in Eq: Large Cap
Monday, 20 August 2018 09:10

10 Top Income Ideas

(New York)

The current rate environment has put investors in a pickle. How does one protect short-term income needs while also protecting against interest rate risk? One important factor is to remember is that one can balance short-term losses by holding bonds to maturity, so stringing together groups of short-term bonds can be a solid risk-mitigating, but yield-maximizing strategy. There are a number of funds to look at to make managing the situation easier. These include the Lord Abbott Short Duration Income Fund (LDLFX), Transamerica short-term bond (ITAAX), and the Nuveen Short Duration High Yield Municipal bond (NVHIX).


FINSUM: It is a difficult fixed income environment right now, with corporate bonds broadly in the red for the year. A well-crafted and balanced strategy is a must, and given that short-term bonds currently have strong yields and less interest rate risk, they seem like the best bet.

Published in Eq: Large Cap
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