But if I knew how to manage my portfolio safer and smarter than most hedge fund managers, I could realistically grow my wealth.
Why you should avoid commodities in a rising rate environment
Other commodities have suffered as well: Most agricultural commodities are down between 5% and 10% year-to-date, and oil prices have slid on less angst over Iraq and the Middle East.
While longer-term interest rates have remained stable, the prospect for an early Fed tightening is exerting downward pressure on the prices of shorter-maturity Treasury bonds.
With the Fed likely to begin raising rates in the first half of 2015, you may be wondering how to position your portfolio for the coming period of rate normalization.
After lift-off, the Fed will likely normalize rates slowly until we reach a federal funds rate closer to 3%. The pace at which the Fed normalizes the rate will most likely be very deliberate.
A September transition announcement could lead to rate normalization beginning as early as March. A presumed six-month period after the public dissemination of the transition plan would mean a March rate lift-off.
So, you’re probably wondering now: When will the Fed begin to raise rates? Here’s my take on the rate rise timeline to watch for now post Jackson Hole.
These comments from Chair Yellen, along with the recently released minutes from the FOMC’s July meeting, show a Fed that is clearly angling toward more near-term policy normalization.
According to Rick Rieder, Fed Chair Yellen’s Jackson Hole comments, along with the recently released Fed minutes, clearly show we’re at the beginning of a very significant period of transition for Fed monetary policy.
On August 15, yields on ten-year notes (IEF) and 30-year bonds (TBT) both fell by ten basis points to 2.34% and 3.13%, respectively. This was also their lowest level in over a year.
ETFs are an investment avenue that trades on exchanges and generally seeks to track the performance of an underlying exchange. For example, the SPDR S&P 500 (SPY) is an ETF listed on the NYSE Arca exchange that seeks to track the performance of the S&P 500 index.
So what does this mean for investors? We have been neutral on high yield (HYG) for the past few months as it has offered more income potential than other asset classes.
As high yield spreads have widened, they have become more attractive to other fixed income investments. The ratio of high yield (HYG) to investment grade credit spreads, for example, is now more than 4:1.
From June 30th to August 6th, high yield bond ETFs (HYG) experienced $3.7 billion of redemptions, and this included shorter maturity high yield funds which had been impervious to previous periods of outflows.
In the past few weeks we have seen some cracks in the high yield picture. Elevated geopolitical risk, an Argentina default and a US jobs report that was weak relative to expectations contributed to the sell-off.
Recent flows data show that investors are starting to sell out of their high yield bond positions. Interest rates are still low, so why the exit? Matt Tucker weighs in.
Since the third quarter of 2010, corporate debt has increased every quarter. Over the past six quarters, corporate debt has been growing at an average annualized rate of around 9.5%, well above the pre-crisis average of 7.5%.
Sentiment among institutional investors remained strong but dipped slightly to 114.7 in July from a revised 119.3 in June.
As we know from the risk-return trade-off, the higher the level of credit risk an issue has the higher the yield will likely be. Credit risk is often measured with a metric called Option Adjusted Spread or OAS.
In addition to interest rate risk, there is substantial emphasis on the yields available for different levels of credit risk, which is essentially the risk that an issuer will not make regular coupon payments or will not be able to pay back principal.
A lot of investors evaluate fixed income sectors by looking at the level of yield they might receive for a given level of risk. We continue to explore how investors consider interest rate risk and portfolio positioning in the current environment.