Where Are the Opportunities Within Fixed Income Investing?
Opportunities within fixed income lie in the high yield sector. About 15% of high yield bond issuers belong to the energy sector (XLE).
Yields dipped further this year, with the ten-year falling well below the 2% mark due to fears of a “Grexit” (Greece’s exit from the European Union).
Invest in the far side of the Treasury yield curve for more value. The spread has increased from close to zero in 2007 to about 250 basis points.
Global demand for US Treasuries could persist for the rest of the year. Major developed markets (EFA) outside the US have seen poor growth or recession.
Returns on leveraged loans trended down in the week ended March 20. The S&P/LSTA U.S. Leveraged Loan 100 Index fell by ~0.2% over the week ended March 20.
US leveraged loans saw $3.5 billion of senior loans in eight transactions in the week to March 20. This was 55.3% lower than the week ended March 13.
Net inflows in high yield bond mutual funds were negative for the second time in eight weeks. Net outflows totaled $1.0 billion in the week ended March 20.
Rite Aid issued $1.8 billion in B3/CCC+ rated senior notes. It will use the proceeds for the $2 billion acquisition of Envision Pharmaceutical Services.
Last week brought the total US dollar issuance of high yield bonds to $83.7 billion in 2015 year-to-date, up 29% from the corresponding period of 2014.
Two rallies after the FOMC statement led the NASDAQ Composite Index to its highest closing in 15 years, just below its all-time high of 5,048.62 in 2000.
Investment-grade bond (AGG) mutual funds saw net inflows of $1.73 billion in the week. This was up sharply by 203.1% from the previous week.
Yankee bonds dominated the issuance in the week. They accounted for 43.5% of all the issues. Yankee corporates made up 31.3% of all the issues.
Corporate investment-grade borrowing declined to $20.47 billion in the primary markets in the week ending March 20, 2015—67.2% lower than the previous week.
Treasury yields were battered in January 2015—compared to December 2014. Yields on high-grade bonds also came down.
With the FOMC refraining from an aggressive stance on monetary policy, fixed income instruments—including corporate bonds—get more breathing room.
The U.S. Department of the Treasury held its four-week Treasury bills auction on March 17. Bid-to-cover ratio showing overall demand rose from 3.4x to 3.6x.
At the 13-week Treasury bills auction on March 16, T-bills worth $26 billion were offered. Overall auction demand tanked by 11.7% in the week.
The US Department of the Treasury held its 26-week Treasury bills auction on March 16, offering T-bills worth $26 billion, the same as the prior six weeks.
The U.S. Treasury auctioned ten-year TIPS worth $13 billion on March 19. The amount was lower by $2 billion from the January 22 auction.
Treasury yields fell nearly across the curve in the week ended March 20, 2015, driven by the FOMC’s monetary policy statement on March 18.
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