How Low Bond Yields Affect Your Portfolio
The ten-year Treasury (IEF)(TLH) yields are currently testing their all-time low at around 1.5%.
It’s useful to analyze the historical returns of credit rating categories within emerging markets bonds.
There are several risks to investing in emerging market bonds right now. Emerging countries have been on a debt binge of sorts for the past five years.
Emerging market bonds have been doing extremely well over the past couple of months. EM debt funds have been in the green for seven consecutive weeks.
In this series, we’ll see why emerging market bonds are looking attractive, how the Market has gained position this year, and the risks emerging market bond investors face.
Investors may also want to consider a small allocation to BB rated emerging markets countries.
But emerging markets represent a diverse group of countries, and individually they carry varying levels of risk.
As with any investment in the emerging markets, investors must balance the additional yield which can be achieved with emerging markets bonds with incremental risks.
Emerging market bonds have outperformed year-to-date. Let’s take a closer look.
Equity markets barely reacted to the Fed’s July policy statement released on July 27, 2016. The S&P 500 index was weighed down by consumer staples and Coca-Cola.
The Fed had a meeting on July 27 to decide on the monetary policy. The tone of the Fed’s statement made a case for the September meeting to be a live one.
The ten-year Brazilian bond is yielding as high as 11.7% due to higher interest rates, a downgrade to junk status, and deep economic recession.
The reason for low yields lies outside the United States. Global yields have been heading south over the last ten years.
The US GDP growth rate is on a somewhat solid footing compared to the rest of the world. The stronger dollar has been a drag on exports and, by extension, on GDP growth.
TIPS (VTIP) (TIP) are likely to underperform since inflation levels and growth rates are very low on a global level.
As of June 30, 11 fallen angel companies had issued tender offers YTD, boosting their bond prices by 5% on average.
Fallen angel bonds—high-yield bonds originally issued with investment grade credit ratings—are generally known for offering potential value. A big source of this value has been the tendency of fallen angels…
Fallen angels (ANGL) have had lower average default rates than the broad high yield bond (HYEM)(IHY) market historically (3.58% versus 4.19%).
Historically, it seems that fallen angels generally perform well across interest rate environments.
About 75% of fallen angel bonds (ANGL) were rated BB as of May 31, 2016. Original-issue investment-grade bond issuers tend to be larger.