Displaying items by tag: bonds

(New York)

Markets got hit with a double whammy yesterday. Escalating trade tensions absolutely nailed equities, but in a move that surprised some, US Treasuries did not gain. For essentially the last 30 years, whenever equity prices took a big hit, Treasury bonds tended to gain on their safe haven value. However, yields on the ten-year actually rose a point yesterday. The reason why appears to be the Fed’s very optimistic position on the US economy, which compels many to believe rates are headed higher, making Treasuries less appealing.

FINSUM: Markets, both stocks and bonds, are caught between a burgeoning trade war and a rate tightening cycle. Doesn’t sound very bullish.

(New York)

Many investors are worried about rising yields, which could wreak havoc on everything from the economy, to income stocks, to all manner of bonds. Well, for what it is worth, Morgan Stanley has just put out a piece arguing that the 3.12% yield seen on the ten-year Treasury recently is it, the peak. Morgan Stanley says that yields will stop rising and they are advising clients to go long Treasury bonds at current yields. The argument stands in contrast to Pimco and JP Morgan, who both see yields moving towards 4%. The one caveat to the call is if trade tensions get settled quickly, as turmoil on that front is one of the bullish drivers they see for Treasuries.

FINSUM: If trade tensions keep flaring we agree that Treasury yields are likely to stay flat or fall as investors flee to safety.

(New York)

One of the big worries about the stock market right now is that the rise in bond yields could threaten appetites for equities. Well, the ultimate test of that theory has arrived. As of this week, the yield on the One Month Treasury note, yes the one month, is now just about equal to the S&P 500’s average yield. The One Month is yielding 1.84% versus 1.89% for the S&P 500. The notes have very little credit risk or interest rate risk. ETFs that invest in short-term debt have seen $17 bn of inflows this year.

FINSUM: So fund flows are starting to show why we are worried about stocks. Equity dividend funds have been seeing outflows, while fixed income funds have been seeing inflows.

(New York)

Income stocks are a tough asset to place right now. On the one hand they have provided steady income since the Crisis, but as rates have risen, they have started to be wounded by losses and their yields no longer look as promising. Only 25% of stocks in the S&P 500 have yields higher than the 10-year Treasury bond. But what about stocks that are still handily out-yielding bonds? The best places to look are in consumer staples (averaging 3.3% yields), real estate (3.4%), telecom (5.4%), and utilities (3.6%).

FINSUM: So you can still get some great yields, but the big risk at the moment is capital losses because of rising rates.

(Washington)

In a widely expected move yesterday, Jerome Powell announced the first hike of his stint as the head of the Fed. The move was a quarter point higher to between 1.75% and 2%. Powell promised to be more open and transparent about the Fed’s outlook than in former times. Powell presented the rosiest outlook on the US economy in memory, repeatedly expressing strong optimism. He indicated that there were two more hikes planned for this year.

FINSUM: All the optimism comes across as quite hawkish despite Powell’s intentions to seem gradual. We appear to be on definite course higher.