Displaying items by tag: bonds

(New York)

Is this a watershed moment for the equity market or just another small blip in the exorable march higher? That is the question investors are asking themselves this week after the losses of the last few trading days which occurred as a response to quickly rising yields. Many analysts and Wall Street veterans think that heavy pressure will be on equity prices as yields move towards 3.5%. According to BNY Mellon, as yield move higher is hurts “investors’ ability to call this stock market reasonably valued”. Some investors are more sanguine, believing the market can handle higher rates.

FINSUM: One of the biggest signs here does not have to do with yields themselves. Rather, some big money managers are admitting that they are rotating some money out of stocks and into bonds to reap the gains of higher yields. That will likely be the biggest challenge for stocks.

(New York)

As almost all investors are aware at this point, global markets, including the US, saw huge moves in yields yesterday. Trading of the 10-year US Treasury bonds saw yields as high as 3.22% today, sharply higher than just a week ago. The Dollar also soared. This led to a big selloff in stocks as well as major losses across emerging markets and US corporate bonds.

FINSUM: In our view, there are two ways to interpret this big move higher in yields. One is that it was just reactionary to new US economic data and that yields will stall again. The other is that the market has finally woken up to the reality that higher rates and yields are a certainty and that expectations need to be reset. We favor the latter view and think this could be a paradigm-shifting move that finally sparks losses in bonds and rate-sensitive stocks.

(New York)

There has been a lot of speculation about rising rates and whether the Fed might increase the pace of its hikes. However, until yesterday, that fear had not really exhibited itself in yields. Now everything is changed. Accordingly, Barron’s has run a piece highlighting two funds to help protect your portfolio from rising rates. One is the Loomis Sayles Bond fund (LSBRX) and the other is the Oakmark Equity & Income Fund (OAKBX). The former takes an all-bond approach to offset rate rises by loading up on shorter maturities. The Oakmark fund usually holds around 60% equities, with a mix of bonds making up the rest.

FINSUM: These are interesting choices. Whether to buy passive or active funds to offset rate hikes right now has to be the advisor’s choice. ETFs and mutual funds can both be good options depending on the approach one wants to take.

(New York)

The big global selloff in sovereign bonds, which included US treasury bonds, has spilled over into the corporate bond sector in a big way. One of the biggest ETFs tracking US corporate bonds fell to 2013 lows today. “The jump in rates is inevitably detrimental to long-duration credit performance, with LQD a classic example”, said an analyst, citing BlackRock’s popular LQD corporate bond ETF. While corporate earnings look healthy, the big issue is that investment grade bonds tend to have higher durations than high yield, which means they suffer more when rates rise.

FINSUM: We wonder how much this jump in yields might start to really affect the giant mass of BBB bonds. This kind of move in yields could prove a tipping point.

(New York)

Rates are rising, and with it, investors need to take a closer look at their portfolios. Rising rates can have serious effects on some dividend-focused sectors, such as utilities, REITs, or consumer discretionary, and most bonds. With that in mind, here is an ETF to help combat rising rates. One fixed income ETF built for the current rate environment is the iShares Interest Rate Hedged Corp Bd ETF (LQDH). What makes this ETF special versus others is that it is actively managed and has longer-term fixed income exposures, which stands in sharp contrast to the mostly short-term bonds these funds typically hold. It holds a 3.62% yield and charges 0.24% per year.

FINSUM: That seems a good expense ratio and yield given that this is an actively managed fund. Interest rate hedged ETFs seem like a good idea right now given the strong economy and increasingly hawkish Fed.