More From Matt Tucker, CFA
Why Your Portfolio Needs More Than Just Equities
You know your portfolio needs more than just equities. So what can complement equities in your portfolio? How many high-yield bonds you own depends on your risk appetite.
Why Robust Growth Could Lead to an Early Rate Hike
Robust growth could lead to an early rate hike—despite low inflation. Low inflation rates are one of the reasons why Treasury yields have remained low.
Clearing up a common misconception about bond ETF management
A bond ETF is managed by a human (sometimes several). A common misconception about bond ETFs is that they simply hold all the securities in the index they track.
Labor Day barbecues, beaches, and bonds: Why it’s all about balance
If you’re Matt Tucker, everything reminds you of investing, even the last barbecue of the summer. Read on to discover how your bond portfolio may very well resemble a Labor Day mixed grill.
The Tails Of The Yield Curve May Provide Value
The tails of the yield curve may provide more value due to low inflation.
4 ways to increase your corporate bond exposure
Record low U.S. Treasury rates continue to push investors to find yield elsewhere, and it seems that corporations are rushing to meet the demand. Matt Tucker explains.
Unique opportunities for investors given new monetary policy outlook
I’ve discussed on The Blog how an investor can think of the federal funds rate and QE as a gas pedal. Sometimes it’s good to ease off a bit to limit the pace of acceleration.
Hunting for Yield: Looking beyond Japan
Japan is the largest accessible bond market in Asia (source: Barclays Multiverse Index as of 7/29/16), but the problem is the yields for many local bonds are negative.
The Intense Search for Yield Ends in the United States
You historically can’t get a high level of yield from relatively safe fixed income investments.
Why The Dip In The Unemployment Rate Is Insufficient
Despite the dip in the unemployment rate, interest rates remain close to zero.
Why investors are turning to corporate bond ETFs
Investors seeking exposure to investment grade or high yield corporate debt have increasingly been using fixed income ETFs.
Why debt levels are high despite deleveraging efforts
As my colleague Russ Koesterich mentions in a recent Blog post, deleveraging has taken place in the financial sector, but other segments have continued to grow and issue more debt.
Assessing high yield bonds as part of your fixed income portfolio
The decadent offering of barbecued ribs at a weekend party is similar to that of high yield fixed income investments. By taking on greater risk of spilling sauce on your shirt you have the experience of a true summertime staple…
Must-read: Use emerging market bonds for higher yield potential
For those who want a little more adventure on their menu, there’s always the option of adding some unique flavors like spicy kebabs. This is the equivalent of adding some emerging markets fixed income to your bond portfolio.
When The Net Asset Value Of A Bond ETF Differs From Market Price
The Intraday Indicative Value gives us a more real-time value than the bond ETF’s NAV. It’s considered an implied value of an ETF.
The Interest Rate Timeline Has Shifted
The graph above shows the history of the federal funds rate. The federal funds rate is a tool that the Fed uses to control the interest rate.
How INC Can Help Balance a Fixed-Income Portfolio
The correlation between the S&P 500 Index and Treasuries has been -0.55 over the last five years.
Why Junk Bonds Are Not Good Diversifiers
High yield bonds show a moderate correlation with investment grade corporate bonds. As a result, junk bonds are not good diversifiers.
Why Low Interest Rates Have Affected Asset Prices And Yields
Low interest rates have supported the economy, but another side effect of low interest rates is that it discourages household savings.
Must-read advice for investors considering TIPS
From TIPS to “phantom income” to varying distributions — Matt Tucker is here to explain what they are and how they are related.
How Various Asset Classes Compare Using The Risk-Return Metric
The risk-return metric for ten-year Treasuries (IEF) are lowest, but also the safest, with a paltry 1.3% volatility and with an average yield of 4.1%.
High-Yield Bonds Are Turning Out to Be the Real Winners
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.
Divided Opinions about the Fed’s Rate Hike Procrastination
The December 2015 rate hike was the first since the 2008 global meltdown. Now the Fed is hinting at the first rate hike of the year to come in December 2016.
Connection Between Equities And High Yield Bonds
Equities and high yield bonds perform well when the economy is improving, and both underperform when the economy is slumping.
Must-know: Why corporate debt offerings are increasing
Over the past six quarters, corporate debt has been growing at an average annualized rate of around 9.5%, which exceeds the pre-financial crisis average of 7.5%.
What the demand and supply imbalance in bond markets implies for investors
The demand we have seen for fixed income this year is a significant contributor to lower interest rates. The demand is coming from retail investors through mutual funds and ETFs, as well as institutions and government bodies like the Fed.
Incorporating investment-grade bonds in your fixed income portfolio
Just like a prime, choice, or select cut of beef, there are investment grade bonds that are rated according to credit quality. Investment grade describes bonds that are “AAA” or “AA” (high credit quality) and “A” to “BBB” (medium credit quality).
Recommendation: Consider hedging against rising interest rates
As the Fed continues to reduce its Quantitative Easing program, Matt Tucker explores ways to attempt to hedge against rising interest rates in your bond portfolio.
Interest rate hedging: The must-know key to managing duration
So how can an investor manage duration, beyond investing solely in short duration bonds? An alternative approach is to utilize interest rate hedging.
Must-read: Why high yield bond funds experienced a major sell-off
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.
High yield bond sell-off: A must-know investor outlook
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.
The must-know basics of fixed income investing
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.
The must-know risk-return trade-off in fixed income investing
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.
Emerging market bonds: The pros and cons of investing
EM spreads have tightened some as well, but not nearly as much. As a result, the yields on EM debt appear to be unusually wide given the credit quality of the issuers.
Will Bonds Continue to Outperform?
Bonds held a lot of promise compared to stocks on September 26, 2016, due to the continuous influx of funds from stocks to bonds.
Why Did Treasury Bonds Record a Fall in Yield?
The yield on US ten-year Treasury securities fell below the 1.6% mark for the first time on September 26, 2016 due to a rise in demand.
Why the Spike in Demand for Investment-Grade Corporate Bonds?
The demand for US investment-grade corporate bonds was driven by higher yields generated by bonds in the midst of low interest rates.
Will Treasury Inflation-Protected Securities Be a Game-Changer?
According to Bloomberg, Treasury Inflation-Protected Securities (or TIPS) have generated a year-to-date return of 6.3% compared to 4.7% by the broad Treasury market.
The Rally in Emerging Market Debt
Emerging markets’ nonfinancial corporate debt breached the $26 trillion mark in the first half of 2016.
Limited Options for Yield-Starved Investors
What does all this tell us? First off, there just aren’t as many opportunities for U.S. investors in international developed bond markets.
Diminishing Opportunities in Asia: What You Need to Know
The balance of countries in Asia present more interesting opportunities. To better focus our discussion, I’ll concentrate on investment grade markets.
Regulatory Hurdles Affecting Chinese and Indian Bond Markets
As the intensifying search for yield goes international, Matt examines and shares his thoughts on the different Asian bond markets.
Why Bargain Hunting in Continental Europe Yields No Results
Given the negative yields in Continental Europe, it would be wise to combine developed markets with good economic fundamentals.
Negative Rates Rules in Continental Europe
The lackluster economic growth and low inflation in Europe have forced the European Central Bank to unleash measures such as quantitative easing.
Many Parallels in Developed Countries’ Bond Markets
In the first week of August 2016, the BOE (Bank of England) cut its key interest rate to a record low of 0.25% from 0.5%, the first cut in seven years.
Credit Risk and Interest Rate Risk Have a Negative Correlation
Credit markets tend to improve when the economy is improving. The possibility of a default on corporate bonds (LQD) drops, thus causing their yields to fall.
What Risks Are Involved in Bonds?
Since Treasuries (TLH) do not have any credit risk, the yield on them is the reward you get for taking on interest rate risks.
IYLD: A Diversified Fixed Income Portfolio
Within fixed income securities, there are two main types of risks: interest rate risk and credit risk.
Find Out Which ETF Invests in Other ETFs
The main goal of the iShares Multi-Asset Income ETF is to deliver high current income, while also providing diversification benefits and maintaining long-term capital appreciation.
The Impact of Rising Interest Rates on TIPS
With interest rates likely to go up by the end of the year, TIPS with shorter maturities look more attractive.
Comparing Treasury Inflation-Protected Securities and Treasuries
Yields on TIPS remain close to 0%, making them unattractive for some. However, considering that inflation rates could go up and remain there, these securities look attractive.
Why Inflation-Protected Securities Are in Vogue
If the recent economic improvement in Europe is sustainable, it could lead to a higher demand for American goods in Europe. This could also contribute to higher inflation in the US.
An Interest Rate Hike Could Cause a Flatter Yield Curve
The rate hike could cause a flatter yield curve.
Why Global Demand for US Treasuries Could Keep Yields Low
Global demand for US Treasuries could persist for the rest of the year. Major developed markets (EFA) outside the US have seen poor growth or recession.
Why Credit Spreads Expanded Last Year
The global slowdown and the slump in oil (USO) prices caused credit spreads between junk bonds and Treasuries to increase.
Why US Treasury Yields Stayed Low In 2014
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.
Where Are High Yield Bonds On The Risk Continuum?
High yield bonds (HYG), which are usually issued by mid- and small-cap companies, are considered riskier than investment grade corporate bonds.
Junk Bond Yields Are High, But Beware Of The Caveat.
The key point is that junk bond yields are high for a reason. Investors take on high credit risk in order to procure high yield.
High Yield Bond Funds: The Liquid Way To Access Junk Bonds
Relatively speaking, the high yield bond funds are quite popular within the fixed-income ETF world.
The Link Between Oil Prices And High Yield Bond Yields
High yield bond fund HYG saw inflows peak at close to $4.5 billion in 2012. High yield bond fund flows have turned negative since.
Why High Yield Bonds Are Not Good Diversifiers
High yield bonds correlate highly with equities and moderately with investment grade corporate bonds. Hence, high yield bonds are not good diversifiers.
When High Yield Bonds Perform Well, And When They Don’t
High yield bonds perform well when the economy is improving.
The Tables Have Turned For Fund Flows In High Yield Bonds
Fund flows in high yield bonds have turned negative.
Calculating A Bond ETF’s Underlying Value
The calculation of a bond ETF’s underlying value is going to be less precise than a stock ETF’s underlying value.
Determining The Underlying Value Of Equity And Bond ETFs
An ETF’s underlying value is calculated using the NAV. This is the sum total of all the holdings in an ETF divided by the number of its shares outstanding.
The Management Of Bond ETFs Versus Equity ETFs
The management of bond ETFs is a more complex task that involves sampling representative bonds from a given index.
Tracking Bond ETFs
Although bond ETFs in the US are less liquid than the stock ETFs (SPY), they are more liquid than those in some other developed markets (EFA).
Know More: Bond ETFs Versus Equity ETFs
Stock ETFs (Exchange Traded Funds) and bond ETFs actually have quite a few things in common. Both vehicles typically track an index, both trade on an equity exchange, and both give investors exposure to a diversified portfolio of securities in one trade. However, because stocks and bonds trade very differently, it stands to reason that […]