What You Can Take Away From The 2014 Fixed Income Markets
One thing you can take away from the 2014 fixed income markets is that it’s really hard to predict interest rates, even for the professionals.
With the US economy improving, the Fed is likely to increase the federal funds rate. Thus, Treasury yields could rise this year, albeit slightly.
The global slowdown and the slump in oil (USO) prices caused credit spreads between junk bonds and Treasuries to increase.
US Treasury yields have stayed low due to soft global growth. Yields have been driven down since the financial crisis due to the Fed’s bond buying program.
Leveraged loan mutual funds saw outflows the week of February 27. The quantum of outflows was $118 million versus inflow of $130 million the previous week.
Riverbed Technology, a manufacturer of appliances used to connect computers in a wide-area network, issued leveraged loans worth $1.725 million.
Due to the fall in yields, returns on high yield debt were positive in the week ending February 27.
Almost all high yield bonds that were priced in the market in the week ending February 27 found strong investor appetite.
With several central banks remaining accommodative, driving bond yields down, investors turned to high yield debt and associated ETFs to get higher yields.
The S&P 500 remained above 2,100, but ended lower for the week, while the DJIA was marginally down from its previous week’s closing level.
The U.S. Department of the Treasury held the weekly 26-week Treasury bills auction on February 23. T-bills worth $26 billion were on offer.
The U.S. Department of the Treasury auctioned 13-week Treasury bills worth $26 billion on February 23. The number of percentage bids rose by nearly 10%.
Market demand for four-week Treasury bills rose from the previous week. Indirect and directs bids were both up over previous weeks.
Demand for two-year floating rate notes fell on dwindling hope that the Federal Reserve will raise rates in mid-2015, as expected by some.
Two-year T-notes are the shortest-maturity Treasury notes. Two-year Treasury note auctions signal market expectations for short-term rate movements.
The yield on five-year Treasury notes in the secondary market remained unmoved following the auction. Demand for these securities was also lower.
The U.S. Department of the Treasury holds seven-year Treasury note auctions every month. Seven-year Treasuries are in the middle of the yield curve.
Yields on Treasuries fell across the yield curve last week, primarily driven by Janet Yellen’s congressional testimony on monetary policy.
Bond ETFs are gaining popularity, because nowadays, it is much simpler to invest in bonds via ETFs.
Leveraged loan mutual funds finally saw inflows last week. The quantum of inflows was $130 million compared to net outflow of $25 million the week before.
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