Displaying items by tag: yields

(Tokyo)

Bond yields had been rising quickly in the US. The rise seemed to come out of nowhere for American investors, but most analysts said the quick jump in ten-year yields was due to a possible policy change by the BOJ to a less accommodative stance. However, the BOJ announced today that it would make only very minor changes and would remain highly loose in its monetary approach. The bank said it would not join other global central bank’s in tightening policy, and would leave rates ultra low for an extended period.

FINSUM: This is good news for bond investors, as Japanese tightening was interpreted as a major threat. This should help keep US yields looking attractive versus global yields, which will in turn keep them lower.

(New York)

Investors may need to be very worried about stagnant bond yields. After many weeks of pause, bond yields finally look set to move higher. The ten-year Treasury is approaching 3% and as the good market mood and good economic news continues, it seems there could a surge higher in yields. European yields have also been moving sideways for some time. Improving trade relationships, great earnings, and good economic data mean that the bond market may react all at once in the near-term.

FINSUM: This is an interesting argument—bond yields have been quite stagnant despite good news, and they may ultimately react all at once. Seems plausible right now.

(Chicago)

Barron’s has put out an interesting article outlining a key correlation in the muni market. We thought it was worth some coverage. A new study out of the University of Illinois has found that muni bond yields tend to lose when local newspapers shut down. Local media often keep local government spending in check and work as a balance on corruption and mismanagement. A multi-year study of the muni market found that yields tended to rise when these papers shut down. The authors summarize “The loss of monitoring that results from newspaper closures is associated with increased government inefficiencies, including higher likelihoods of costly advance refundings and negotiated issues, and higher government wages, employees, and tax revenues”.

FINSUM: This makes perfect sense to us. The problem is that local newspapers have a bleak future at the moment, so the hopes of them serving as a watchdog in the future looks highly unlikely.

(New York)

A 7% yield admittedly sounds attractive. However, what if it comes from a shipping company, and at the beginning of a trade war no less? That must be crazy. Think again, says Barron’s. The company is Triton International, which is the largest shipping container lessor in the world, owning 3.5m containers. It is a highly experienced operator and has 26% market share. However, worries over a trade war have hammered the stock, which is down 18% this year and trading at just over 7x earnings. Fears of how a trade war might affect its business look overblown and a fair market valuation for the company seems about 40% higher.

FINSUM: So this is a bet that the market will reevaluate the stock’s business model and see it is not that vulnerable. Sounds like a risky bet to us, but a 7% yield is nice cushion.

(New York)

Emerging markets have been on a wild ride this year, with many entering into bear markets. But what about EM debt? That market has faced headwinds as the US Dollar is strengthening on the back of expectations for higher rates. However, some bond fund managers really like EM debt right now. While USD denominated debt from countries like Argentina get a lot of the attention, local currency EM debt can be very rewarding. In Brazil and Mexico, for instance, local currency bonds are yielding 10% and 7%, respectively. Other countries with solid local currency debt are South Africa, India, and Indonesia.

FINSUM: So there seem to be two big risks here. One is the exchange rate risk, and the other is credit risk. That said, these yields do seem to be rewarding, and worthwhile if they are a small part of a portfolio.