Displaying items by tag: bonds

Wednesday, 02 January 2019 13:32

Fed to Cut Rates?

(Washington)

If that headline sounds like relief to your ears, read further. While there are no clear signs out of the Fed yet (other than increasingly dovish talk), new data is showing that the Fed may cut rates in 2019. The forward spread shows that traders are anticipating a rate cut at the beginning of the year. Two-year Treasuries have seen their yields slip below one-years’. This is the first time this has happened since 2008. According to a market strategist at Pimco, “This is a crystal ball, it’s telling you about the future and what the market thinks of the Fed and what it will do with its policy rate”.


FINSUM: We don’t think the Fed will cut in the first quarter unless something more drastic happens, but we are quite sure they won’t hike.

Published in Bonds: Total Market
Friday, 28 December 2018 12:49

Investors are Fleeing Corporate Debt

(New York)

While the stock market is getting all of the attention, the bond market is experiencing a lot of turbulence as well. The riskiest corners of the debt market, including junk bonds and loans, are on pace for their worst month since the US downgrade in August 2011. High yield’s spread to Treasuries has surged a whopping 110 basis points since the start of the month, and unlike in stocks, there aren’t signs of a rebound. The average yield on the index is 8%.


FINSUM: It is reasonable to be nervous about credit right now given the huge volume of issuance in recent years and the pending threat of a recession and accompanying earnings slowdown.

Published in Bonds: High Yield
Thursday, 27 December 2018 13:35

There is No Bond Crisis Brewing

(New York)

The market has been very worried about a potential bond market meltdown. Both investment grade and high yield debt have seen major losses lately as fears have mounted about high corporate debt heading into a possible recession and downturn in earnings. One of the big worries is that there will be a surge in BBB (the lowest rung of investment grade) debt that falls into junk status. However, Bank of America is more sanguine, arguing that growth is solid and companies have actually been issuing much less debt, and will continue to do so. Their view is that companies are in a much sounder financial position than before the last crisis.


FINSUM: The debt gorge that happened over the last several years is inevitably going to have consequences, and we think BAML is way too relaxed about the risks.

Published in Bonds: Total Market
Friday, 21 December 2018 14:01

JP Morgan Says You Should Flee into Bonds

(New York)

Where to put one’s money in 2019? That is the difficult question every investor must face at the moment. For a long time “TINA”, or “there is no alternative”, was the mantra which kept guiding capital into stocks alongside miniscule yields. Now with rates and yields rising and stocks having seen big losses, where should investors turn? The reality is that bonds seem likely to outperform stocks next year, at least according to JP Morgan. The bank thinks EM debt is likely to have a good year as once the Fed stops tightening the Dollar will likely weaken, giving a boost to EM assets.


FINSUM: In our view, a lot of damage has already been done to stocks and there are now some very interesting buys. Furthermore, short-term debt has seen yields rise high enough that you can get decent returns without a lot of interest rate risk.

Published in Bonds: Total Market
Monday, 17 December 2018 12:17

Credit Markets are Freezing Up

(New York)

In many ways credit markets are a major bellwether for both the economy and the stock market. And right now, they are sending some poor signals. Investors are afraid of rate hikes and money managers are refusing to bankroll buyouts. As a gauge to how brutal the environment is, consider this: not one company has borrowed in the US high yield market this month! A strategist from Janney Montgomery Scott put the current market environment in perspective: “This is clearly more than year-end jitters … What we’re seeing now is pretty typical for end-of-credit-cycle behaviour”. Yields on junk bonds have climbed over 100 basis points since mid-September.


FINSUM: Junk bonds are likely feeling more heat from the worries about a recession and weakening of earnings (in light of high indebtedness) than they are interest rates.

Published in Bonds: High Yield

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