BTC iShares Core U.S. Aggregate Bond ETF
Why tight credit spreads usually mean a period of global expansion
Today, most measures of credit conditions are positive, with tight spreads across all of fixed income. Even high yield spreads have come in after a short scare last month.
Rate hike horizon: September’s jobs report was largely positive
After September’s strong jobs numbers, a Fed rate hike could be on the horizon early next year. Russ explains two equity market implications.
Gold Has Outperformed Other Asset Classes
Why Gold’s Resilience Continues in July Following the June 23 Brexit vote when the UK chose to withdraw from the European Union, bond yields fell to record lows and gold rallied to two-year highs, reaching $1,375 per ounce on July 6. In the US, subsequent strong economic results in manufacturing, retail sales, and housing created […]
Why high-grade debt issuance increased more than three-fold
In the week ending August 8, weekly investment-grade bond (LQD) issuance surged by 222%, week-over-week to come in at $24.975 billion over 19 deals. Issuance was driven by refinancing older and costlier debt, acquisition related financing, share-repurchases, and other general corporate purposes.
Why Did the US Federal Reserve Turn Hawkish at Its June Meeting?
As expected, the Federal Reserve increased the interest rate by 25 basis points after its June meeting, which concluded on June 13.
Must-know: How will this week’s JOLTS report impact US debt?
JOLTS (the “Job Openings and Labor Turnover” report) produces monthly estimates of job openings, hires, quits, layoffs and discharges, and other separations.
Fed’s twin targets—are negative real interest rates needed?
The Federal budget deficit (the difference between budget collections and the government’s commitments) has also been a key source of uncertainty to both businesses and households.
How will this week’s consumption indicators impact debt securities?
This week, markets will be looking at any clues revealing hints for the outcome of the Fed’s next Federal Open Market Committee Meeting (or FOMC) slated for March 18–19.
Low Interest Rates Have Kept Bond Yields Low
Weakness in the labor market means low interest rates. The US economy is gaining momentum with stellar growth rates in the last two quarters. It grew by 4.6% in 2Q14.
Why Kocherlakota wants the Fed to be free in its decision making
Kocherlakota gave a presentation at the annual American Economic Association conference. He was firmly in favor of letting the Fed be free in its decision making.
Why high-grade bond issuance dropped to the lowest level in 2014
With the earnings season in full swing, issuance levels have fallen over the past few weeks—a number of corporate borrowers are subject to blackout periods preceding their quarterly earnings releases.
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.
Must-know: Market’s reception of the Fed’s July FOMC statement
Treasury yields on the long-end of the curve, were down since the conclusion of the Fed’s last FOMC meeting on June 18—30-year and ten-year Treasury yields had fallen by 12 bps and three basis points (or bps), respectively over the period June 18 to July 30.
Why corporate bonds reacted to the QE3 exit and GDP surprise
Bond yields and prices move in opposite directions. Due to the increase in yields last week, returns on investment-grade bonds were negative.
Inflows into Investment-Grade Bond Funds Increase Last Week
Investment-grade bond (AGG) funds saw net inflows of $1.53 billion in the week ending May 1, 2015.
Why the Fed’s policy remains the key driver for US Treasuries
On August 15, yields on ten-year notes (IEF) and 30-year bonds (TBT) both fell by ten basis points to 2.34% and 3.13%, respectively. This was also their lowest level in over a year.
The Quest for Yield: Chasing Dividend Stocks
If you had to sum up investing in the US markets after the Great Recession in a few words, you would probably say something like “the quest for yield.”
Markets Look at US-China Trade Talks as Slowdown Concerns Multiply
Today, another round of trade talks started in Beijing.
Fixed income ETF must-knows: Comparing Treasuries and other ETFs
Credit spreads associated with lower rated bank loans found in SNLN and BKLN could underperform as corporations see cash flow decline and their ability to service their debt is compromised.
Macro investment recovers: Time to short the long end of the curve?
This article considers the possibility of rising rates and the case for taking a bearish view on bond prices.
Strong Economy and a Rate Cut: Can Trump Have It Both Ways?
Today, President Donald Trump told reporters, “Our country’s doing unbelievably well economically.”
What Should You Expect from Monetary Policy Announcements?
Most FOMC participants indicated that they preferred to consider a possible rate hike on a meeting-by-meeting basis—without providing any hints about the timing of a rate hike.
How Will a Busy Week of Macros Affect Markets?
The first week of May is packed with key macro events. On the monetary front, we have the FOMC meeting scheduled during the week and the all-important April jobs numbers set to come out on Friday.
A Softer Rebound Could Move Markets in the 2Q
A softer rebound could move markets in the second quarter. If the economy remains weak in the second quarter, the Fed has some leeway to maneuver the rate.
Green Bonds Issuance Show Signs of Growth in 2017
Green bonds carry the same risk-return profile as conventional bonds. However, these bonds fund projects focused on energy efficiency, clean water, transportation, biodiversity, and sustainable waste management.
Ray Dalio: The Next Downturn May Be a Difficult One to Reverse
“The next downturn may be a difficult one for central banks to reverse,” warned Ray Dalio, CEO of the world’s largest hedge fund.
Where Can You Find Relative Value within Fixed Income?
Where’s the relative value within fixed income? High yield bonds appear relatively attractive.
How Green Bonds Can Help Diversify Investor Base
Even if we assume that green bonds don’t offer any significant premium over conventional bonds, there are many who believe in other noteworthy advantages of green investing.
Tapering and debt markets: Predicting the Fed’s upcoming view
Possibly the most important indicator for the debt markets going forward will be provided by Fed Chairman Janet Yellen’s semi-annual monetary policy testimony.
Why low correlations between asset classes benefit investors
A diversified portfolio—one in which funds are divided among various asset classes, like stocks, bonds, or real estate—would usually have lower risk than an non-diversified portfolio.
Must-know: What investment-grade corporate bonds expect in 2015
U.S. investment-grade corporate bonds (LQD) weathered higher market volatility well in 2014. They’ve been a steady source of returns for investors.
Why you should invest in some of the 1,500 ETFs in the US
In this series, we’ll introduce you to the concept of exchange-traded funds (or ETFs). You’ll find out about the types of ETFs and how they can help your portfolio.
Fixed income must-know: Why the Fed struggles to create inflation
This article considers the Federal Reserve Bank’s continued struggle to reach its inflation target and the implications for fixed income investors.
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 economic data influenced high-grade bond yields
Economic data usually influences investment-grade bond yields, including Treasuries (TLT) and corporates (AGG) (LQD). Yields tend to fall on negative economic data. They rise when economic data is positive. Demand for safer investment-grade debt rises when economic growth concerns surface. This tends to raise their price and lower yields.
Investment-Grade Bond Funds Saw Outflows Last Week
Flows into investment-grade bond funds (LQD) were negative in the week ending June 17. This was the second consecutive week witnessing outflows.
Why should the FOMC provide systematic forward guidance?
In this part, we will discuss aspects of Plosser’s speech relating to a rules-based or systematic approach to forward guidance.
Why To Expect Muted Returns from US Equities
We can expect muted returns from US equities going forward. US stocks face the prospect of higher interest rates, albeit gradual and from unusually low levels.
Why the federal budget deficit is returning to normal levels
This article considers the ongoing decline in the federal budget deficit and considers the implication for fixed income investors.
High-Grade Bond Funds See Outflows in the Week Ending April 17
Investment-grade bond yields usually follow cues from the Treasuries market. With a fall in Treasury yields, investment-grade corporate bond yields also fell.
Why is Puerto Rico in hot water over its debt obligations?
Puerto Rico’s labor force participation rate was about 40% in April, 2014.
Assessing Sovereign Bonds amid Heightened Global Uncertainty
Global uncertainty, Brexit, and the prospect of further easing from central banks in developed markets have spurred demand for government debt.
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.
Bill Gross Says the Fed Must ‘Get off Zero’
Bill Gross expressed his views on the markets and on the Fed’s decision to delay the rate hike in his Investment Outlook October 2015.
Areas of Relative Value within Fixed Income
For investors, the implications are not to load up on bonds, but to tactically look for areas of relative value within fixed income.
How can retail investors invest in floating rate notes, or FRNs?
The Treasury’s newest issuance of floating rate notes, or FRNs, on January 29, commanded immense investor interest. The $15 billion issue received bids for 5.67 times the issue amount.
Must-know: Unusual outcomes arising from low interest rates
When real interest rates decline, the prices of long-term bonds increase because bond yields and prices move in opposite directions.
Fixed income ETFs: Key differences in duration and quality
This article considers the trade-offs between high-credit-quality and lower-credit-quality, as well as shorter-duration and longer-duration, fixed income ETFs.
Why Bill Gross’ exit from PIMCO affected mutual fund flows
In the coming months, yields are likely to trend higher as the Fed moves closer to ending the taper and tightening monetary policy.
5-year Treasury notes saw lower auction demand
The difference between five-year and 30-year Treasury (TLT) yields narrowed to 142 basis points (or bps) on September 26. This is the narrowest it has been since January 16, 2009.
Is Brexit Underscoring the US Corporate Bond Market’s Strength?
When uncertainty rises, equity markets become volatile, and bond spreads rise. Brexit is likely to have a similar effect on capital markets.
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%.
Must-know: Fisher’s stance at future FOMC meetings this year
Fostering price stability is one of the Fed’s most important goals.
2-Year T-Notes Attract Higher Market Demand in March 2015
Primary dealer takedown was lower due to higher market demand. It was 36% of competitive accepted bids—down from 38.5% in February’s auction.
Must-know: The Treasury International Capital report
Net foreign purchases of long-term securities came in at $19.4 billion.
Janet Yellen on the State of the US Economy and the Outlook
After stating her expectation of a rate hike, Yellen noted that robust household spending was helping US economic activity expand.
Where Green Bonds Could Fit into Your Portfolio
As we’ve seen, green bonds add value to the environment. But they can also provide you with diversification benefits.
FOMC’s June Meeting Moved Markets
In the June FOMC meeting, the weighted average forecast was much lower at ~70 basis points. Both stocks and bonds rallied after the meeting.
High-grade bond supply spike triggers hope for record year
Last week was strong in terms of issuance volumes in the primary capital markets. High-quality bond issuance touched $51.3 billion across 42 issues in the week ending November 7.
Why Goldman Sachs Has Revised Its Gold Forecast Higher
Goldman Sachs (GS) has long been bullish on gold. In March 2018, the bank turned positive on gold (IAU) for the first time in more than five years. It’s since been advising investors to turn defensive due to its forecast of increased risk, recommending that investors go for high-quality stocks and gold.
How bond prices, interest rates, and credit spreads correlate
Bond prices and interest rates have an inverse relationship. If an interest rate increases, the price on a bond declines, and vice versa.
Why investors can benefit from floating rate notes, or FRNs
FRNs represent an effective way for investors to benefit from the anticipated rising interest rate environment and also provide a safer place to park cash.
Why credit risk is an essential value driver of high yield bonds
Bonds are highly sensitive to credit risk—other than U.S. Treasury securities, which are more prone to interest risk. Credit risk hugely varies.
Spread risk: Why credit ratings are a key risk determinant
Credit ratings assess the credit-worthiness of a borrower and assign a grade based on the borrower’s business operation and financial stability.
Why do floating rate notes, or FRNs, differ from regular bonds?
The U.S. Treasury Department’s latest issue on January 29, the floating rate note (or FRN) will fulfill two investor needs: participating in anticipated future interest rates increases and protecting principal against default.
Why investors should look at floating rate notes as an option
On January 29, 2014, the U.S. Treasury Department issued a new class of security: the floating rate note (or FRN). This is the first new security introduced by the Treasury since 1997.
Why the MBA Purchase Applications Index is a major bellwether
The Mortgage Bankers Association’s (the MBA’s) Purchase Applications Index is a weekly measurement of home loan applications.
Will small business optimism increase, boosting fixed income ETFs?
The National Federation of Independent Business (or NFIB) will release the Small Business Optimism Index on Tuesday, March 13.
Why T-Bill auctions saw strong demand though rates stayed low
The 26-week T-bill was also auctioned on Monday, March 10. The T-bill rate for the auction came in at 0.08%, unchanged from last week’s auction.
Why credit upgrades and downgrades affect bond returns
A ratings upgrade or downgrade has a direct impact on fixed income yields, and therefore directly affects bond prices.
The risks and returns on domestic and overseas bond funds
There are various measures used to compute the yields on bond funds, the most commonly used ones being the SEC yield and the distribution yield.
New Cleveland Fed CEO Loretta Mester weighs in on monetary policy
Loretta Mester is the new president and chief executive officer of the Federal Reserve Bank of Cleveland. She has taken over the reins from Sandra Pianalto, who retired on May 31.
Why we need to relook at the consumer in this week’s releases
This week is full of indicators, with most of them being measures of national-level economic activity.
Overview: Chicago Fed’s National Activity Index report, May, 2014
Unlike the regional manufacturing surveys conducted by the Federal Reserve Banks of other districts, the CFNAI is a nation-wide measure.
Key drivers affecting investment-grade bond funds flows
Bond yields and prices move in opposite directions. As a result, returns on high-quality corporate bonds were positive. This year, demand for U.S. investment-grade debt benefited from geopolitical tensions overseas and economic growth fears in the first quarter. This raised prices and lowered yields on high-quality corporate bonds.
A key preview of retail indicators due for release this week
Last week, both the ICSC–Goldman Sachs Retail Chain Store Sales Index and the Johnson Redbook index recorded strong year-on-year gains.
Investor flows in high-grade bond funds belie rate rise worries
Treasury yields and yields on U.S. corporate bonds usually move in the same direction in response to economic data. Due to the factors described in the previous part of this series, yields on corporate bonds rose over the week.
Why high-grade issuers stayed away from capital markets
Despite favorable market conditions, high-grade corporate bond (AGG) issuance was muted in the week ending August 15. Issuance usually has a seasonal slowdown in July and August. There had also been a surge in primary market issues the previous week.
Corporate debt reacts to FOMC minutes and Europe’s banking stress
The release of the Fed’s Federal Open Market Committee (or FOMC) minutes for the June meeting, exerted a considerable influence over debt markets (AGG) last week.
Searching for income: Do equities still make sense?
Using stock portfolios to generate income while simultaneously building equity-like exposure in bond portfolios is becoming risky in some scenarios.
Why international and global dividend stocks look interesting
However, there are segments of the dividend space that still look interesting: international and global dividend stocks. Here are two reasons why.
Why high-grade and high-yield markets assess risks before FOMC
Generally, bond yields increase when the economy is expanding because the central bank will likely raise rates sooner rather than later—the demand for financing for funding new projects also increases which generally tends to increase rates.
Why the fall in high yield bonds was a surprise
High yield bonds like the SPDR Barclays Capital High Yield Bond ETF (JNK) and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) are riskier assets compared to investment grade bonds (AGG) and straight Treasuries (TLT).
Must-know: High yield bonds are risky and costly
One of the reasons why fixed income investing has been greatly favored by investors is because bonds help diversify the risk that comes from a pure equity portfolio.
What Do Widening Bond Spreads Indicate?
Widening spreads indicate a slowing economy. Since companies are more likely to default in a slowing economy, credit risk related to their bonds rises.
Must-know: The corporate debt market
Corporate debt (debt issued by corporations) can be classified in various ways. It can be classified in terms of the maturity, the type, or the issuer’s credit quality.
Investors Beware: Duration Risk Has Risen across the Bond Market
If you’re a bond (BSV) (AGG) investor or fund manager, fluctuation in interest rates is one of the key risk drivers for the returns you get from your portfolio.
Ray Dalio to Bond Investors: We’re There!
In a recent appearance at the Delivering Alpha conference, Ray Dalio commented on the amount and nature of debt in the global (VTI) (ACWI) economy.
Must-know: Important costs involved in owning an ETF
Owning an ETF comes with some fees. These fees are called “expense ratios” because they’re expressed as a percentage of a fund’s assets.
Why expense ratios affect ETF investors’ returns
To see how expense ratios can affect investments over time, let’s compare the returns of several fixed income ETFs that differ only in expense ratio.
Must-know: Minimizing ETF losses by observing max drawdowns
In practice, asset owners (both retail and institutional) want to avoid significant portfolio drawdowns even if the benchmark index declines.
Must-know variants in developed market international bond funds
International bond funds like the Vanguard Total International Bond Index ETF (BNDX) can have various investment styles determined by their stated choice of bond investments.
Why high-grade borrowers are upbeat about market conditions
U.S. investment-grade bonds are also often seen as a refuge for both domestic and international investors when market risk spikes. U.S. bond markets were impacted by Argentina’s sovereign debt default and Portugal’s banking crisis, involving one of its most prominent lenders, Banco Espirito Santo.
Why do floating rate notes, or FRNs, differ from leveraged loans?
FRNs are usually issued in capital markets, whereas leveraged loans are arranged by commercial and investment banks. While FRNs are typically unsecured and investment-grade, leveraged loans are secured.
Must-know: Lessons from the $2 billion issue at Target
Target (TGT) made a two-part $2 billion offering. The retailer issued $1 billion each in five-year and ten-year notes, in order to refinance about $1 billion in existing debt.
Why apparel sales may boost April earnings for retailers like Gap
Both the International Council of Shopping Centers (or ICSC) Goldman Sachs Store Sales report and the Johnson Redbook Index report for the week ended April 5 will be released on Tuesday, April 8.
How firms’ inflation expectations impact the Fed’s mandate
Other factors remaining constant, the higher the expected rate of inflation, the higher the required rates of return on both debt (AGG) and equity (VOO) investments, and vice versa.
What Bond Titans Gross and Gundlach Say about the Sell-Off
Jeffrey Gundlach, CEO of DoubleLine Capital, said yesterday that US Treasury yields (TLT) are likely to rise further.
Do Strong Growth and Weak Inflation Make a Case for a Lower Rate?
The US Bureau of Economic Analysis released its personal consumption expenditure (or PCE) price index today. The PCE index is the Federal Reserve’s preferred gauge of inflation.
What Does Gundlach Have to Say about the Fed’s Next Moves?
As far as the Fed’s next moves are concerned, Gundlach said that if the market forces are allowed to prevail, interest rates should go up even in the next downturn.