Displaying items by tag: bonds

The IMF has warned investors that there are growing concerns about an emerging market debt crisis. There is anxiety that sluggish growth, higher interest rates, and surging inflation will hurt developing economies much more severely than developed ones. They will be disproportionately affected because highly indebted countries will have a dip in their investment and suffocate their currencies. These concerns aren’t new and emerged at the start of the pandemic, but this swell seems different. The Fed responded by pumping trillions into the economy in 2020 and they are doing the exact opposite now. Additionally, war and other risks are heightened now with Russia-Ukraine’s escalation.

Finsum: Investors searching for yield should be wary of emerging market bond funds given unprecedented risk levels.

Calling bond prices stubborn would be an understatement, and the bears have been continuing to pull investors out of the bond market in the mass exodus of outflows. The tides could be starting to shift, and the reasons are on opposite ends of the spectrum. Investing yield curves and recession indicators are flashing, which means investors will flock back to the bond market as a safe asset when equities fall. On the other side of things, if inflation is being driven by supply-side factors more than the Fed thinks, then inflation will fall dramatically, and less tapering will be needed to get there. This means bond prices could rise as yields fail to. Broad bond exposure is still a good idea with volatility rising.

Finsum: It’s been rough in the bond market the last few months, but there are economic reasons that could turn around.

There has been a mass exodus in the corporate bond market which is making fixed-income funds as attractive as they have been in a while. Outflows started 21 weeks ago and are hitting $28 billion according to Refinitiv Lipper. With investors fleeing this has created even more negative returns on top of inflation and interest rate pressure. Investors willing to hold bonds to completion, particularly in value sectors like banking are getting them at an ultra bargain. One reason we are seeing investors flee corporate bonds is yields have been climbing faster than treasuries but many see interest rate risk already priced in which could be enough to turn around the investment-grade bond market.

Finsum: Value sector bond ETFs could be a smart play, with commodities and financials being major players. 

Pick your favorite recession signal and there is a chance it's flashing the warning signs. Most are eyeing the 2-to-10 year yield curve which inverted in early April. Investors worried about the recession should turn to high-yield bonds, but specifically, those ‘sin’ goods are the best remedy for the recession. Alcohol and Tobacco are two of the best performing industries in the 12-months leading to a recession and the years after. Food and beverage, utilities, and healthcare all are great performers as well. The high yield bonds to avoid are telecommunications and retail shopping, as their returns can vary drastically.

Finsum: Junk bond yields are relatively high right now and less sensitive to Fed moves, high yield bonds are a potentially good alternative right now.

Inflation may be peaking, or at least that is what Treasury bulls are thinking. A rally started at the 20-year note and worked its way to shorter term rates this week: the 30-year yield fell 13 basis points and the ten-year yield fell by 12 basis points. Declining yields were driven by investors flooding into these treasury markets. Still, investors are pricing in a half-point rate increase by the Fed in the next two meetings with an almost 100% chance of reading the tea leaves in the options markets. The rally was really suppressed by Bank of America’s Forecast which said inflation peaked in March and will be on the decline. Similar patterns took place on the long end of the government bond market in the Euro areas as well with Germany and the U.K. seeing their yields fall.

Finsum: The flood in the TIPS market suggests that bond investors still see some persistent inflation in the near term.