How Did Markets React to the Fed’s September 2016 Minutes?
US equity markets were marginally higher on October 12, the day of the release of the minutes for the September monetary policy meeting.
In the current market environment, duration risk has risen across bond markets (BND) (LQD). When interest rates rise, bonds with a higher duration will likely be affected more.
All countries have suffered from yield increases, and monetary policy is turning less accommodative, even in Japan and the European Union.
The ten-year Treasury note, which rose in price in the first half of 2016 and pushed the yield down to 1.4%, has started selling off in the second half of the year.
Investors have once again flocked to bonds, the Japanese yen, and gold due to the 10.0% fall in China’s exports and concerns over a major rejig by the central banks.
The colossal central bank stimulus at below-zero rates and quantitative easing have wreaked havoc on the correlation dynamics between stock and bond prices.
High-yield bonds gained popularity due to higher yields compared to Treasury bonds, whose yields were being pushed down by the Fed’s interest rate policy.
The demand for US investment-grade corporate bonds was driven by higher yields generated by bonds in the midst of low interest rates.
IGEM gives you good exposure to investment-grade emerging market bonds. They’re less risky and add diversification benefits to your portfolio.
Investment-grade emerging market sovereigns have been given BBB or higher credit ratings by one of the credit rating companies. They’re relatively safe.
Emerging market economies have seen improved GDP growth in 2016, while developed markets are struggling to grow.
The financial sector will likely be the most affected by the steeper yield curve.
The US 30-year Treasury (TLT) yield rose the least between August 31 and September 15, 2016.
In this series, we’ll compare yields across various developed markets (EFA) (VEA). We’ll also look at how a steepening yield curve affects the financial sector (XLF).
Although the markets have surged to record highs in the last two months, there are early warning signs you should watch. The recent decline came on Friday, September 9.
The relationship between the CBOE Volatility Index (or VIX) and the spread between high-yield bonds over ten-year Treasuries is highly correlated.
Looking closely at mutual fund and ETF flow data can provide some insight into how investors have approached the asset class this year.
Current low and negative yields in developed markets have led many to look outside of core fixed income asset classes for attractive income.
The correlation between oil and high-yield bond indexes is very high. Where oil goes, high-yield bonds follow.
The three-month Volatility Index (or VIX), which measures the implied volatility of options on the S&P 500 stock market index, is approaching record lows.