Displaying items by tag: fixed income

This week’s muni bond selloff has created a buying opportunity, Wall Street strategists suggest. Following a selloff in U.S. Treasuries, muni yields rose sharply as economic strength tempered hopes for rate cuts. 

Despite a Thursday rally, the 10-year benchmark muni yield remains 26 basis points higher than its start-of-week level, marking one of the year’s steepest weekly declines. JPMorgan strategists see value at current levels, particularly with supportive market conditions anticipated in November. 

The iShares National Muni Bond ETF drew $362 million in inflows on Thursday, helping bolster the market. Barclays strategist Mikhail Foux expects favorable muni performance later this year, though he advises caution until rates stabilize.

Finsum: We think munis might present one of the best options in the bond market as rates begin their descent 

Around two-thirds of active bond funds outperformed their average passive peers during the 12-month period ending June 30, according to Morningstar's latest Active/Passive Barometer. The report, which examines the performance of over 8,000 funds across various categories, highlighted that intermediate core bond funds led the way, beating passive funds 72% of the time. 

These active bond funds benefitted from narrowing credit spreads and inflation that kept interest rate cuts on hold. However, over a 10- and 15-year horizon, only 45.5% and 15.9% of these funds outperformed, respectively.

Additionally, actively managed real estate funds outperformed their passive counterparts 66% of the time over the same 12 months, with U.S. and global real estate funds seeing strong short-term success. 

With a contentious U.S. election on the horizon, investors are bracing for potential market turbulence, but opportunities within the bond market are emerging. Fixed income, particularly municipal bonds, is poised for strong returns as real interest rates remain historically high, offering attractive yields. 

Municipal bond issuances have surged this year, driven by the need for infrastructure funding, creating a favorable entry point for investors. As demand increases and supply decreases later in the year, prices may rise, especially for long-term bonds.

Municipal bonds also present compelling value due to their strong credit profiles and tax advantages, offering stability in uncertain times. 

Finsum: Muni bonds provide an excellent option for tax-sensitive investors looking for a solid addition to their portfolios amidst market volatility.

On September 18, the Federal Reserve kicked off a new easing cycle by cutting interest rates by 50 basis points, its largest reduction in 16 years. However, instead of a smooth decline in bond yields, the 10-year Treasury yield actually rose afterward, highlighting the unpredictability of markets. 

The Fed has made it clear that its strategy will be a gradual one, adjusting based on economic data, with a neutral policy stance likely to be reached by 2026. Other major central banks, such as the ECB and BOE, are also approaching rate cuts cautiously to curb inflationary pressures.

 China, facing economic slowdowns, has continued cutting rates to spur growth in other sectors, despite ongoing issues in the property market.

Finsum:  As global central banks navigate rate cuts, market volatility is expected, especially with geopolitical risks and upcoming elections contributing to uncertainty.

The bond market is experiencing a notable transformation, similar to what the equity market saw with the "barbell effect." Investors are splitting their capital between low-cost passive funds like ETFs and high-return alternatives like private credit, while traditional active managers are struggling to stay competitive. 

Bond ETFs have gained ground, fueled by rising interest rates, offering lower fees and better liquidity. Meanwhile, regulations are pushing banks to offload risky debt, increasing partnerships with private credit firms. 

This shift is spurring innovation, and major players are betting on private credit becoming a mainstream asset class.

Finsum: Seeing how the long-term impact of private credit affects the bond market will be worth monitoring tightly over the coming years but more immediately, this rate cycle.