Displaying items by tag: credit

(New York)

You may not be paying much attention to it, but the last month has been very good for investment grade bonds. The reason why is that ratings agencies are in the midst of a massive wave of upgrades to companies that got downgraded at the start of COVID. This has sent demand for debt soaring as companies re-enter the investment grade market. For example, just in the week ending July 16th alone, the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) pulled in $1.1bn in inflows. According to a credit strategist at Citi, “It’s like something that I have not seen in my time [in the industry] … After the financial crisis we didn’t get major companies moving back to investment grade so quickly”.

FINSUM: This is the early innings of yet another corporate bond bull run. Only credit specialists have mostly paid attention to this point, but investment grade bonds seem a good choice given the credit rating tailwind.

(New York)

The market took a nosedive in the middle of the day today as investors were walloped with a hot CPI inflation reading. The CPI rose an eye-popping 5.4% in June, with core inflation coming in at 4.5%. The market was anticipating a flat 5.0% CPI number. Indexes turned downward immediately following the report. It should be noted than June 2020 was the nadir of the pandemic inflation readings, so that makes this report look even bigger.

FINSUM: The inflation boogeyman returns. Beware a big sell-off across the board in bonds, especially if the Fed or a member of the Fed makes any tightening comments.

(Washington)

Janet Yellen shocked the markets recently in an interview where she praised the potential of higher inflation…see the full story on our partner Magnifi’s site

(New York)

The municipal bond demand has spiked to a near all-time high. Prices are indicative of that, but…see the full story on our partner Magnifi’s site

(New York)

Despite the big losses in Treasuries, high yield bonds have been doing well, and according to Fidelity that seems likely to continue. Advisors could be forgiven if they are wondering “how?”. The answer is that the big reason bonds are losing is interest rate risk, and it so happens that high yield bonds have some of the lowest interest rate risk around because of their higher coupons and shorter terms. According to Adam Kramer, who managers Fidelity’s Strategic Income Fund, “an economic recovery may be on the horizon and the Fed may avoid tightening monetary conditions for some time”, which he says means the high yield market “could offer investors the best of both worlds in 2021”.

FINSUM: High yield bonds have the lowest exposure to the market’s major risk at the moment and also the upside of an economic recovery. The picture is bright.