Displaying items by tag: bonds

(New York)

The market has been nervous for months about growing inflation in the US. The Fed has tried to appear sanguine about it, and has so far done a decent job of keeping fears in check. However, a blowout inflation report this month, as well as more hawkish comments this week, means that anxiety is rising strongly again. And according to Jeffrey Gundlach, the fears are justified as he believes inflation will not be “transitory” as central bankers have been predicting. One of his core arguments is that inflation may become a self-fulfilling prophecy, where consumers start stocking up on items now to avoid future price rises, which in turn causes shortages and drives prices higher.

FINSUM: The self-fulfilling prophecy is a good near-term argument, but we have a longer-term one: demographics. The largest generation in the history of the US—Millennials—are coming into their peak earning and buying years, which is creating demand for literally everything, and supply is tight across almost all industries. Inflation looks inevitable.

(New York)

There has been a lot of worry about bond prices recently. With inflation rising steeply and the bond market still regaining its footing, it is easy to worry about another sharp selloff. Because junk bonds are on the riskier end of the fixed income spectrum, many think there is more risk in this area. However, the opposite is true, especially in a rising economy. Because they tend to have higher yields and shorter terms, junk bonds naturally have less rate risk. Additionally, because of their underlying financials, junk bonds have a lot to gain in a rising economy. For example, they may be likely to get upgraded, and because of their relatively weak financial positioning to begin with, even minor gains can mean substantial valuation improvements.

FINSUM: If you need income, then high yield bonds are one of the best bets given their natural rate hedging and their potential for significant financial improvement.

(New York)

The market was in a frenzy over the latest CPI report which had the highest rise in inflation…see the full story on our partner Magnifi’s site

(New York)

Junk bonds have been riding the rally like many other financial sectors…see the full story on our partner Magnifi’s site

(New York)

Yields did something very alarming today: they shot up to their highest level in two weeks as a kick-off to summer trading. Yield rises were the epicenter of all the volatility a couple of months ago, and have been the key driver of stock returns as they are the primary asset for pricing inflation risk. So the big question is where will they go from here?

FINSUM: Inflation fears have calmed, but commodities prices are still keeping those worries alive. The Fed seems to hold the key to the whole issue. As long as it walks the line that inflation is transitory, and data at least marginally backs that up, the market will be fine. But if we get a couple suspect reports, and a bad headline or two, all exacerbated by an off-the-cuff Fed remark, we could easily stumble into a correction.