Markets

Seems that fixed income’s calling and it might pay to presume it’s not someone hawking insurance.

 

In 2023, it “has a huge potential” to dispense strong returns, according to Joanna Gallegos, co founder of BondBloxx Investment Management, reported yahoo.com, which carried an article earlier in the year which originally was published on ETFTrends.com. That said, it remains a good idea to be cautious.

Worth investing time in, especially: high yield corporate debt. That’s because they offer high yields and it’s projected by Bond Boxx that corporate defaults, compared to their long term average, will remain lower.

Tormented by hyper interest rate spikes that culminated in spiraling bonds yields, 2022 was one of the worse for fixed income, added money.usnews.com.

It sparked a deep dive of price of fixed income assets, and longer duration issues in particular.  

This year? Oh how the page turns. Paul Malloy, head of municipals at Vanguard, said "the 2023 outlook is drastically different than the position we found ourselves in last year,” Indeed, fixed-income investors started 2022 with a near-zero federal funds rate, but are now entering 2023 with a rate of 4%-plus. According to Malloy, the Federal Reserve "front-loaded" much of its policy tightening this cycle and is likely nearing a wrap.

 

“The fixed income asset class has a huge potential to deliver better performance in 2023,” Gallegos said on CNBC’s “Worldwide Exchange.” “We’re at new rate levels we haven’t seen in over a decade plus, and so, you’re really resetting valuations in a way that are very attractive.”

 

Goldman Sachs Asset Management recently launched the Goldman Sachs Community Municipal Bond ETF (GMUN). The ETF, which trades on the NYSE Arca, seeks to provide investment results that closely correspond, before fees and expenses, to the performance of the Bloomberg Goldman Sachs Community Municipal Index, a rules-based index designed to track the municipal securities market with remaining maturities between one and 15 years. The ETF also has screens that consider certain social or environmental factors. By focusing on 1-to-15-year maturities within the investment grade municipal bond universe, the portfolio will seek to deliver diversified market exposure with lower duration and higher credit quality than the broader municipal market. The ETF is managed by Goldman’s Municipal Fixed Income team which brings decades of experience with an active and disciplined approach to investing in a market that is vast and fragmented. The fund has an expense ratio of 0.25%. According to Goldman, targeted allocation into municipalities and projects with positive impact will provide the opportunity to invest in education, healthcare, clean energy, and more community-related initiatives.


Finsum:Goldman recently launched its first muni ETF, the Goldman Sachs Community Municipal Bond ETF (GMUN), which provides exposure to tax-exempt municipal securities with remaining maturities between one and 15 years.

Concerns over the banking sector are currently making things rough in the $8 trillion agency mortgage bond market. Agency mortgage bonds are widely held by banks, bond funds, and insurers as they are backed by mortgage loans from government-controlled lenders Fannie Mae and Freddie Mac. They are far less likely to default than most debt. They are also easy to buy and sell quickly, which is why they were Silicon Valley Bank’s biggest investment before its troubles. However, agency mortgage bonds are vulnerable to rising interest rates like all long-term bonds. This pushed their prices down last year and also saddled banks such as Silicon Valley Bank. In fact, the risk premium on a widely followed Bloomberg index of agency MBS hit its highest level since October last week, as climbing interest rates led to volatile global markets. According to bond fund managers, this certainly reflected fears that other regional banks might have to sell their holdings. When benchmark interest rates rise, bonds that were sold at times of lower rates lose value. For instance, prices of low-coupon agency mortgage bonds started dropping about a year ago, when the Fed raised interest rates to tame inflation and also indicated that it might start selling the mortgage bonds that it owned.


Finsum:With faltering banks such as Silicon Valley Bank holding large amounts of agency mortgage bonds, the turmoil in the banking industry is roiling the $8 trillion agency mortgage bond market.

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