Displaying items by tag: yields

(Houston)

MLPs can perform well during periods of rising rates, such as in the last tightening cycle. While they are broadly more risky than bonds, they can provide good returns. Many MLPs collect inflation hedged payments, so they should perform better than bonds in a tightening environment. As an asset class, MLPs have been holding back on payouts, but these should accelerate in 2019 and 2020. Three names to look at are Enterprise Product Partners, yielding 6.1%, Magellan Midstream Partners, yielding 5.2%, and Antero Midstream Partners, yielding 4.8%.

FINSUM: Those yields look really juicy don’t they? And they are moderately inflation hedged, which is also quite promising. Worth a look.

(New York)

There has been A LOT of talk lately about a bond bear market. The idea is that rates are now in a secular rising cycle led by a hawkish Fed and rising inflation. The issue with that view is two-fold. Firstly, the bond market “experts” calling for the bear market are well-served if it comes true because of the strategies they use. And secondly, there isn’t really evidence of much inflation and the Fed is not looking overly hawkish. The one really worrying thing is that the economy has been performing well, which does lend itself to rising rates and more money flowing into risk assets.

FINSUM: We think all these worries are premature. We have a new Fed chief coming in which now one is sure about, and there just isn’t much inflation. Plus, there are tens of millions of people retiring who will need income investments.

(New York)

The media and many bond market gurus would have you think the ceiling is caving in on bonds. Talk of a massive bear market, surging inflation, and big losses abound. How to make sense of it all? The answer, if there is one, is that reversals in rate environments tend to take a long time, and have historically lasted 2-3 decades before reversing back. Therefore, bond yields may continue to climb steadily, but this shouldn’t be bad for the stock market, so big losses may be avoided. In fact, slowly rising rates can spark structural bull markets. It would also be helpful for pension funds to have higher yields as they could be safe in assuming better returns, helping fund the huge national pension deficit.

FINSUM: We just are not that worried about bonds. The Fed still seems fairly timid, there is high natural demand for yields because of demographics, and inflation and growth aren’t all that strong.

(New York)

Some of the biggest names in bonds are making a bold proclamation that all investors need to hear—that the 30-year bond bull market is over. Both Bill Gross and Jeffrey Gundlach are saying that with Treasury yields rising—currently sitting about 2.5% on ten-years—the bond market has entered a new phase. Gundlach says we are entering an era of “quantitative tightening”, which will cause losses for bonds. Gross says the bear market was confirmed when 5y and 10y Treasuries crossed 25y trend lines recently.

FINSUM: We may very well be entering an era of tightening, but that does not mean it will necessary be a brutal bear market, especially with the demographically-driven demand for bonds. Additionally, with the economy going very well, a recession could be coming, which would ease the tightening.

(Washington)

Okay we have a major call to make today, and it could go well, or it could get ugly for us. Our contention is that despite fears of jumping inflation and growth, we believe rates and yields are going to rise only slowly. New Fed commentary shows that the central bank does not expect the new tax policy to significantly affect growth, which makes us feel they will lean towards dovishness. Additionally, with inflation remaining subdued, we think they won’t be under a great deal of pressure to hike. Finally, on the yields front, we expect that retiree demand for fixed income will keep a lid on yields. As proof, just look at how stock funds have seen three years of outflows, while bond funds have risen for over a year straight.