More From Rick Rieder
Aging Population May Keep Global Growth Muted
An aging population is likely to keep global economic growth muted in the years to come. This is primarily because the dynamics of the population are rapidly changing.
How Can Changing Demographics Impact Investors?
Changing demographics impact investors in many ways. The demand for bonds could increase, putting downward pressure on yields.
Why Structural Hurdles Could Thwart US Economic Progress
The American economy is facing major structural issues that have the potential to thwart economic progress. The most important hurdle facing the US economy is an aging population.
Recommendation: You should favor longer-dated Treasuries
The 10-year Treasury yield still appears attractive relative to sovereign rates elsewhere in the world. In addition, longer-dated Treasuries also look more attractive than those with two- to five-year durations.
Phasing out of financial repression will affect your investments
The United States seems to be in the process of departing a regime of financial repression, i.e. one where a government takes measures to channel funds into its own debt.
Invest in Fixed Income for Diversification and Yield
Invest in fixed income for diversification benefits. Treasuries are also less correlated within fixed income, which makes them a good diversifying tool.
Debate increases at the Fed about the future path of policy rates
The most recent statement made it clear that there’s increasingly active debate within the FOMC over the appropriate path of interest-rate policy given how far the economy has come.
Outlook for Investors as Rates Start to Rise
Despite headwinds in the form of soft wage growth, low inflation, and a falling labor participation rate, the labor market looks robust.
The Slack in the Labor Force Is Almost Out
The slack in the labor force has fallen significantly. The US economy has created a whopping ~4.5 million non-farm jobs since March 2014.
Why the Disconnect between Indicators and Stock Markets?
The possible delay in the Fed’s rate hike is causing a disconnect between indicators and stock markets.
Fed Rate Liftoff: Not Much Is Likely to Change
So now that the Fed rate liftoff has finally arrived, should you flee to market sidelines? If you can believe history, the answer is an emphatic no.
How an Aging Population Could Affect Your Portfolio
One of the big-picture shifts currently taking place is aging populations, especially in developed nations. Populations are rapidly aging in most developed countries.
Still in a Rut: Soft Wage Growth Persisted in February
The trend of soft wage growth persisted in February. Wage growth hasn’t been able to break out of its rut. It continues to stay at a YoY level of 2%.
Why Friday’s Jobs Report Sent the Markets into a Tizzy
The stronger-than-expected data is good news for the economy. However, Friday’s jobs report sent the markets into a tizzy.
Why the Fed Decided to Postpone Liftoff
Forget the September versus December debate. The Fed may already be behind the curve, according to Rick Rieder.
What caused the sharp drop in yields last week?
A number of market watchers attributed Wednesday’s 10-year Treasury yield move to fears about a global economic slowdown, heightened geopolitical unrest, growing worry over the Ebola health risk and uncertainty about Fed policy.
Beyond the Ephemeral: Pay Attention to Demographics
Lost in all the chatter about interest rates is a structural phenomenon that may be of far greater significance: demographics.
Why last week’s sharp dip in yields came as a surprise
And though the 10-year yield recovered somewhat Thursday as Treasury prices dropped, Wednesday’s dip below 2% came as a surprise.
When to Expect a Liftoff in Rates
San Francisco Fed president John Williams noted that the Fed’s ability to hold off a liftoff in rates is “more limited” than its ability to tighten. A rate hike could be expected in September if the economy continues to grow in the next two months.
The road ahead: Why yields are in for a rocky ride
It’s clear that yields are likely in for a rocky ride as seasonal factors and technical unwinds of crowded positions play out in the weeks ahead, and as we get closer to a Fed rate hike.
Indicators Point to Firming in Inflationary Conditions
The core Consumer Price Index, excluding food and energy prices, shows some firming in inflationary conditions. The Core CPI has ticked upward for the last three straight months.
Why you can expect the Fed to raise rates by the end of Q1 2015
Maintaining monetary policy accommodation at “emergency levels” appears both unnecessary and potentially disruptive to the proper functioning of financial markets today.
3 bond moves you should consider after the jobs report
Given all the fixed income headlines over the last week, you may be wondering what the latest jobs report means for your bond portfolio. Rick Rieder shares three investing implications of the September employment numbers.
Stay flexible: Why you need a dynamic bond portfolio
With interest rates volatile and market conditions changing, these are tricky times for bond markets. Rick Rieder outlines three ways markets are evolving, and suggests that staying flexible will be critical.
Must-know changes in the Fed’s “Summary of Economic Projections”
While Fed officials believe real gross domestic product (or GDP) will come in lower than expected in 2014 and 2015, the FOMC members acknowledged that the unemployment rate is likely to decline more rapidly than anticipated.
The US Beveridge Curve Points to a Healthy Labor Market
The Beveridge Curve is an indicator of the strength in the US labor market.
Solid Jobs Growth Points to US Economic Health
Solid employment growth seems to point to the improving health of the US economy. The US markets cheered the April jobs market report on Friday, May 8, 2015.
Recommendation: Look to select areas of emerging market debt
Select areas of the EM debt sector hold good potential, as many of these countries exhibit low leverage levels and are currently funded through year-end.
How Technology Has Revamped Inventory Management
Technology has revamped inventory management for companies in a big way. More and more companies are carrying less and less physical assets.
Tech Adoption Rates Have Reached Dizzying Heights
Technology (XLK) is advancing by leaps and bounds. The diffusion and adoption rates for new technologies have risen over the years as the population has become more tech-savvy.
Higher Interest Rates Could Cause a Flatter Yield Curve
A rate hike could cause a flatter yield curve. With the US economy on strong footing, the Fed is poised to hike interest rates later this year.
Reasons you should stay flexible in your bond portfolio
Forecasting is always a tricky business, but we do believe there are some important factors that will shape the future direction of the bond market and that will have an impact on the way investors should approach fixed income.
Must-know: Why low rates could actually harm the US economy
Lastly, as I mentioned in an earlier post, the Fed’s zero interest rate policy may actually be inhibiting economic growth and job creation in unintended ways.
Must-read: Why the US economy is strengthening
I anticipate that the weak August payroll report will be revised higher and that inflation should firm. Along with their revised expectation of the path of policy rates, Fed officials seem to be on the same page as me.
5 signs from the Fed statement of a sooner-than-expected rate hike
If I had to weigh in on the debate, I’d say the September Federal Open Market Committee (or FOMC) policy statement was “hawkish.”
Markets Are Fairly Calm after Extreme Volatility
Global equity markets (IEFA) have witnessed an intense bout of volatility in the past year. They’ve had corrections of more than 10% twice in 2015.
Must-read: Why low rates lead to capital misallocation
Finally, unconventional monetary policy of recent years has encouraged significant bouts of capital misallocation, resulting in crowded trades, correlated risks and the overly stretched valuations seen in markets today.
The outlook for monetary policy from the Jackson Hole Symposium
These comments from Chair Yellen, along with the recently released minutes from the FOMC’s July meeting, show a Fed that is clearly angling toward more near-term policy normalization.
Absent wage growth: A structural obstacle
The wage rate today is around the same level as it was 12 months back, which means wage growth is absent. This has had a dampening effect on consumer spending, as disposable income is an important determinant of spending.
Why fixed income noise means 3 potential investment opportunities
Given all of the noise in the fixed income market over the last week, however, you may be wondering what my interpretation of this latest report means for your bond portfolio.
Recommendation: You should consider long-end municipal debt
While munis are no longer cheap on an absolute basis, they remain relatively attractive, especially long-end muni bonds. Plus, the sector looks compelling given improving issuer credit conditions and higher tax revenues.
5 reasons excessively low rates could harm the economy
Like quantitative easing before it, the Fed’s zero interest rate policy may actually be inhibiting economic growth and job creation in unintended ways. Rick Rieder explains.
US markets react to the September 2014 FOMC policy statement
More importantly than whether the Fed’s recent policy statement was “dovish” or “hawkish,” the statement provided five signs that a Fed rate hike is likely to come earlier than many expect, writes Rick Rieder.
Why yields for intermediate-duration bonds should increase
Rates at the “belly” of the yield curve will rise more dramatically than long-term rates: This might seem counter intuitive since shorter-term rates are generally less sensitive to rising rates (lower duration = lower rate sensitivity)…
Recommendation: Why you should go for high yield bonds
The 10-year Treasury yield’s recent move has high yield bonds looking more attractive on a relative basis. Earlier in the year, high yield levels sat at 5% vs. 2.5% for the 10-year Treasury.
The FOMC policy statement shows-toned down “dovish” phrases
Back in March, Chair Yellen, perhaps mistakenly, said that a “considerable time” was six months. Then, at her September press conference, she said “a considerable time” isn’t mechanical.
August’s Labor Force Participation Rate Came In at 62.8%
Both the labor force participation rate, which came in at 62.8%, and the employment-population ratio, which came in at 59.7%, were unchanged in August.
August Payroll Report Could Dim September Fed Rate Hike Prospects
There has been much focus over the past week on the August payroll growth slowdown and what it means for the timing of the next Fed hike. Rick Rieder sees a more interesting trend…
Until Recently, Global Growth Was Powered by Emerging Economies
In the past three decades, emerging market (EEM) economies grew rapidly, led by exports, which shifted current account balances from a deficit to a huge surplus.
Global Economy Stuck in the Doldrums
Over the past six decades, the world economy has expanded at a rapid pace—the average global growth rate was 3.8% from 1950–2014. The post-recession global growth has faltered to an average growth of just around 3%.
What’s behind the US Economy’s Remarkable Labor Market Strength?
The US labor market has shown tremendous resilience amid concerns over various issues, like aging demographics.
Effect of China’s Economic Transition on Consumer-Driven Model
The big theme of 2015 was the Chinese (FXI) (MCHI) economic transition from an investment- and manufacturing-led growth to a consumption- and services-driven economy.
How Structural Changes in the World Economy Affect Markets
For the last few years, the world has been in the midst of a major demographic transition, which has affected the world economy. The aging population is one of the most visible global trends
Market Volatility Isn’t a Reflection of Bond Market Illiquidity
Liquidity hasn’t really deteriorated in some of the major segments of the bond market. Other direct liquidity measures suggest sufficient liquidity in the system.
Labor Market Growth Is Unlikely to Sustain Its Recent Momentum
The pace of recent job and wage growth indicates that the labor market remained weak despite a decline in the unemployment rate. The labor force participation rate has not increased substantially in recent years with the improvement in the economy.
How Has Technology Influenced Process and Product Innovation?
One of the most prominent effects of technology is on the asset side of the balance sheet. Many technologies drive companies to employ fewer assets in order to generate higher returns.
What Are the Traditional Measures of Labor Productivity?
Labor productivity is an important tool to measure the strength of a country’s economy. Policymakers often use this indicator to compare output efficiency during a particular period.
Is the Labor Productivity Slowdown Mystery a Statistical Mirage?
The mystery of waning labor productivity in various developed economies is still unsettled. However, various economic literature offers plausible explanations.
Why Has Labor Market Productivity Slowed Down?
In recent years, labor productivity growth has slowed down significantly in most of the OECD countries. This decline is broadly spread across sectors.
Why India Is Primed for an Economic Revolution
While global growth is slowing down, the Indian economy seems to be chugging along.
Why Returns Will Likely Stay Volatile in 2016
Markets are likely to remain volatile for the rest of the year and beyond. Uncertainty about the rate hike could add to this volatility.
What Can You Expect from Markets in 2016?
While I don’t have a crystal ball, here are three things I believe all investors need to know about returns in 2016.
2015 Saw Declines Across the Board: Will 2016 Be Any Different?
Last year wasn’t a great one for investors seeking solid returns. With 2016 off to a rocky start, will we see more of the same this year?
Why Returns Will Likely Be Far from Uniform within Asset Classes
During the last few years, return dispersions within asset classes have been dramatic.
Why the Fed May Have Missed Its Window of Opportunity
The problem for the Fed is that the 5.1% unemployment rate has reached what many economists feel is full employment.
Have Headline Payroll Figures Fallen in the Fed’s Pecking Order?
Headline payroll figures seem to have faded somewhat in significance, at least when it comes to foreshadowing action by the Fed.
Another Reason Why Wage Growth Is Low: Industry Mix Shift
A rise in wage growth may not negate the effect of debtless consumption. Although lower oil prices were expected to be a tailwind for consumption, households used this windfall to service debt.
Why the ECI Number Was Weak in 2Q15
The ECI grew at 0.2% in 2Q15—the lowest quarterly growth in 33 years. Wage inflation is critical from an economic point of view, leading to higher disposable income and consumption.
Employment Costs Increased in the First Quarter
While the CPI is a measure of inflation in consumer prices, the ECI gives an indication of whether employment costs are rising or falling by measuring inflation in wages.
The US Economy Is Relatively Strong
While the Japanese and the European economies seem to be improving, the US economy still seems to be in a better position than the rest.
Is the American Consumer Back?
Until recently, lower oil (USO) prices and a robust job market didn’t lead to greater consumer spending. Instead, the American consumer ramped up their savings and serviced their debts.
How Low Is the New ‘Normal’ for US GDP Growth?
In the US, we would see a better GDP growth rate in 2Q15—compared to what we saw in 1Q15. However, the rebound is expected to be moderate.
Why Is the US Economy in Decent Shape?
The US economy is in decent shape. Low interest rates have been a boon for most families. Home affordability is close to a multi-decade high.
The Must-Know Risks of Fixed Income Investing
There are no free lunches. The risks involved in fixed income investing are two-fold.
Why Corporate Bonds Correlate to Stocks
Corporate bonds, especially high yield corporate bonds, correlate to equities and hence, so they don’t provide great diversification benefits.
Where You Can Find Value Within Fixed Income
The relative value within fixed income lies in corporate bonds with solid balance sheets.
Why Higher Equity Volatility Will Support Bonds
Higher equity volatility will support bonds going forward. This year, so far, the VIX has been generally higher than last year.
The Coming Interest Rate Hike Should Cause Bond Yields to Rise
Recently, the number of jobs created in the US economy has led to a lot of optimism. A better economy will cause bond yields to rise.
Anemic Job Growth And Weak Wage Growth Haunt The Labor Market
Wage rates have a direct impact on disposable income and by extension, consumption. Consumption is an important part of the GDP.
Why The Unemployment Rate Fell: Dipping Participation Rate
The slide in the unemployment rate is partly due to the workers getting discouraged, that is, getting out of the labor force.