The persistence of low yields has had investors searching for income high and low for a while now. Recently, investors are expanding their hunt to some less than obvious places.
Last week interest rates grinded lower despite relatively better data out of Europe and signs that the U.S. Federal Reserve (or Fed) is close to indicating when exactly it will raise interest rates. The persistence of low yields is leading investors starved for income to some new places, perhaps unexpectedly, Australia.
Market Realist – US markets remained relatively quiet last week as yields fell.
The tech-heavy NASDAQ (QQQ) continued to hover around 14-year highs. It was the only major index to register a weekly gain of 0.2%. It closed the week ending February 28, 2015, at 4,963. In contrast, the Dow Jones Industrial Average (DIA) slipped by 0.04% to end at 18,132. The S&P 500 (SPY)(IVV) registered a weekly loss of 0.28%. It ended at 2,104.
However, bonds saw a sharp fall in yields as their prices rose. The yield on the ten-year Treasury (IEF) fell to 2% last week. You can see this in the previous graph. The fall reversed early this week as corporate bond issues picked up momentum. This weakened demand for government bonds. On Wednesday, treasury yields (TLT) edged lower again. Bond yields move inversely to their prices.
The search for yield is a sore point with investors. It’s becoming increasingly difficult to find income. Japanese and European yields remain at ultra-low levels of near zero. In some cases, the yields are even negative. In most countries, bond yields are hitting new lows. This is forcing investors to look for income in new areas—like Australian equities.
In this series, we’ll explore the factors pushing yields low over the world. We’ll also look at the current macroeconomic setup in the US. We’ll discuss why investors have been compelled to extend their search for income to Austalia.