BTC iShares 7-10 Year Treasury Bond ETF
Disposable Income Is Still Below Historical Averages
Disposable income refers to the income available to a household or individual after paying off personal current taxes. Disposable income is still below historical averages.
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.
How Lower Interest Rates Elevated Market Valuations
Lower interest rates have an inverse relationship with stock prices, so when interest rates are lower, the S&P 500’s trailing price-to-earnings multiple rises.
Gold Prices Have Been Flat despite the Weak Dollar
Gold (IAU) (GLD) prices usually have a strong negative correlation with the US dollar (UUP). Gold, like other commodities, is denominated in the dollar.
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.
How Stocks and Bonds Reacted to Trump’s Victory
The CBOE Volatility Index suddenly rose 6.0% on November 9, 2016, after it was clear that Trump had unexpectedly clinched the election.
Must know: Stress tests and the likely timing for rate increases
On March 26, the U.S. Fed released bank stress test results indicating which banks can increase dividend payouts and share buybacks.
Must-know: Ukraine, Europe, and a flattening Treasury yield curve
Economic data was positive for stock. This propelled the S&P 500 Index (SPY) (IVV) to record highs in the week ending August 29. Besides economic data, yields were affected by several other factors. These factors were stronger in determining Treasury yield movements last week.
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.
Why coverage declined for 1-month T-bills despite higher bidding
Last week’s U.S. Department of the Treasury auction for one-month Treasury bills (or T-bills) was held on October 21. Treasury bills (MINT) worth $34 billion were auctioned, which was $1 billion more than the previous week. Despite the higher supply, the bid-to-cover ratio came in higher than the previous week, and market demand rose.
Why direct bidding was strong for the 10-year T-notes auction
The US Department of the Treasury holds a ten-year Treasury (IEF) notes auction every month. The ten-year Treasury (UST) yield is a benchmark yield for financial markets.
10-year Treasury notes auction saw weak demand
The ten-year Treasury notes auction saw a lower bid-to-cover ratio than last month. The ratio was 2.6x—compared to ~3x in December.
Why Unconstrained Bond Funds Could Be Useful Now
Unconstrained bond funds use leverage and derivatives in their portfolios, which magnifies their risk. They have exposure to both credit and interest-rate risk.
Why Holding Cash Is Risky In The Long Run
Holding cash is risky, as it provides negative real returns in the long run.
Major central banks are now diverging in their monetary policies
Major central banks are now diverging in their monetary policies, a dynamic we saw vividly on display last week with the Federal Reserve ending its quantitative easing (or QE) program, while Japan expanded its version of QE.
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 wage growth could cause rates to rise
Wage growth could cause rates to rise. A hike in wage rates could boost consumption and encourage individuals outside the labor force to join. This will increase disposable income.
Must-know: Which safe havens are truly safe?
Although not considered safe haven assets, in the current context of high geopolitical risk and consequently volatility, investors could consider investing in sectors like energy and large cap companies.
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.
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.
Must-know: Why volatility is likely to tick up in September 2014
While volatility fell over the course of August, the VIX’s daily average for last month was approximately 15% higher than its average over the previous three months.
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 Small-Cap Banks Have Been Underperforming
Small-cap banks have been underperforming due to the yield curve that has been flattening since the start of 2014.
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.
Why a Fed rate icrease still doesn’t mean higher yields
Indeed, there are already signs of that increase as central banks back off from so-called quantitative easing. However, the rise in rates is likely to happen more slowly than past rate normalization processes.
Why Real US Rates Have Been Climbing
Real US rates have been climbing, while rates are falling in much of the rest of the world. As Russ explains, this divergence has a number of implications for investors.
Why Changing Gears to Focus on TIPS Could Be Rewarding
The market may be too complacent about inflation expectations at the moment. If this is true, this makes TIPS attractive at the moment.
How the Rate Hike Trajectory in the United States Impacts Gold
Barrick Gold (ABX), Goldcorp (GG), Newmont Mining (NEM), and Gold Fields (GFI) have declined 5.2%, 5.4%, 6.2%, and 2.8%, respectively.
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.
High Yield Offers Attractive Potential in a Yield-Starved World
In an environment of generally decent, albeit recently disappointing, growth and gently rising yields, high yield offers attractive potential in a yield-starved world.
Job Reports Drive Up Treasury Yields
US Treasury yields moved uniformly upwards across the yield curve in the week ended June 5, 2015.
Implications of Fed Decisions on Precious Metals and the Dollar
A rate hike and the dollar are closely tied to each other since a higher interest rate would mean more money flowing into the United States.
Will the Bond Market Recovery Continue this Week?
US bond markets (BND) saw some recovery last week. Overheated expectations for a December rate hike cooled off after the FOMC meeting minutes were reported.
Must-know: Janet Yellen’s take on the Fed’s forward guidance
Central bankers usually provide markets with indications about their economic projections. They also provide information about their future monetary policy stance. The Fed wants to reduce volatility (VXX) in markets by indicating its monetary policy stance. As a result, rate changes won’t surprise the markets as much.
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.
Why demand is rising for 3-year Treasury notes
The U.S. Department of the Treasury holds auctions for three-year Treasury notes (or T-notes) each month. Three-year notes are at the short-end of the yield curve.
Must-know: High yield fund flows regaining strength, time to dip back in?
After several weeks of record outflows, investors start regaining trust Fund flows gauge where most investors are moving their money. While following this indicator assumes momentum strategies work, in weeks of high inflows, there will be a delay between the time when funds come in and when managers can invest them in assets, so they […]
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.”
Japanese corporates’ increased share buybacks could support markets
Japanese companies are more shareholder-friendly, as the government pushes to strengthen corporate governance. Stock buybacks have reached their highest level in six years in an effort to boost return on equity.
Analyzing Treasury yields ahead of the Fed’s September 2014 FOMC
Markets chose to treat the less-than-satisfactory labor market data as a blip. Job creation had been very strong in 2014. Total non-farm payrolls had crossed pre-recession levels.
Recommendation: Keep municipal bonds in mind
While no longer cheap per se after their extraordinary run in 2014, municipal bonds continue to look attractive versus both Treasuries and corporate bonds.
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.
Why You Should Favor Credit over Duration When it Comes to Bonds
Favor credit over duration as interest rates rise. Look for tactical opportunities within fixed income.
Greece Worries Lead Investors to Investment-Grade Bonds
The Federal Open Market Committee’s June statement didn’t elicit a strong reaction in either direction from investment-grade bonds, especially not from Treasuries.
Defensive Stocks And REITs Look Overpriced
REITs are providing an average dividend yield of 3.5%, so investors are drawn to them. This is causing rich valuations and making REITs look overpriced.
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.
Has the Brexit Vote Derailed US Monetary Policy?
After the policy meeting in June, Fed Chair Janet Yellen said that the Brexit vote could impact US monetary policy.
Why Kocherlakota says price targeting beats inflation targeting
Along with the two suggestions mentioned in Part 6 of this series, Narayana Kocherlakota also dropped in two additional suggestions for improving the FOMC framework statement.
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.
Why Treasury note yields fell, while Treasury bond yields rose
Yields for intermediate-term maturities fell by two to four basis points, and those for longer-term (20-30 years) maturities rose by six to ten basis points.
Where Can You Find Relative Value within Fixed Income?
Where’s the relative value within fixed income? High yield bonds appear relatively attractive.
Must-know: An overview of the 52-week Treasury bills auction
The U.S. Treasury auctioned $102 billion worth of Treasury bills (or T-bills) last week. The 52-week, or one-year, auction was held on September 16. The auction size was set at $25 billion—unchanged from August’s auction. The auction demand was slightly lower, with the bid-to-cover ratio falling to 4.06x—compared to 4.10x in August. The ratio averaged ~4.41x in 2014.
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.
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.
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: The success of the Fed’s taper on bond yields
At the September meeting, the Fed announced that it would taper monthly bond purchases by another $10 billion. The monthly bond purchases would be $15 billion per month starting in October. Monthly bond purchases would now consist of $10 billion in longer-term Treasuries (BND) and $5 billion in agency mortgage-backed securities.
Why you can expect the upward-sloping yield curve to continue
Tight monetary policy doesn’t seem to be in the cards—at least in the near future. The yield curve should remain upward-sloping for some time.
Why Treasury yields across maturities didn’t change much
Last week didn’t see much movement in yields across maturities, as investors exercised caution on the backdrop of the ongoing FOMC meeting.
Why Did the German 2s30s Spread Dip on Quantitative Easing?
The 2s30s spread is the difference between the yield on the 30-year bond (TLT) and the yield on the two-year bond (SHY).
Why leveraged buyout debt deals mark record first half in 2014
Leveraged loan (BKLN) mutual funds continued to see investors exit for the eighth consecutive week, with net outflows of $457 million last week.
Why Fisher and Plosser disagreed with the FOMC policy motion
Richard Fisher believes that the Fed needs to tighten policy. This is based on the improved labor market and inflation outlook. He also believes that continued monetary accommodation is causing signs of “financial excess” in certain asset classes. He spoke earlier about signs of froth in high-yield bond (JNK) (HYG) markets.
Must-know: Working the municipal bond portfolio
Flex more muni muscle with a flexible municipal fund. “Unconstrained” investing has gotten quite a bit of press this year.
Understanding the Fed’s yield curve can impact your bond returns
The yield curve is a graph that plots interest rates at different maturities with the same credit quality that can range from a month to 30 years or more.
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 Fed and Bank of Japan monetary policies are at odds
Last week, the Bank of Japan unexpectedly expanded its own version of quantitative easing. This announcement came shortly after an inflation report showed that Japan’s CPI has dipped to 1%, meaningfully below its target.
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.
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.
Why Excessively Low Rates Could Be Harmful
Excessively low rates have side effects. Treasury yields have been beaten down due to the Fed’s excessive buying. Currently, the ten-year Treasury (IEF) yields are 2.1%.
Must-know: Important US releases point to a stronger economy
Meanwhile, outside of the jobs report, other U.S. economic releases are painting a consistently positive picture of the domestic economy.
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.
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…
What Does the Flattening Yield Curve Indicate for Investors?
Bond markets are experiencing rising yields due to higher economic growth expectations. However, the 10-Year Treasury yield was still low at 2.4% on March 29, 2017
Why You Should Look Beyond Treasuries for Portfolio Ballast
Last year, the correlation between stocks and Treasuries increased. Adding Treasuries to an only-equity portfolio became less valuable.
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.
Global Market Uncertainty, Resurrected
Risk aversion is on the rise again as investors begin to question President Trump’s trade policies and as we’ve begun to see changes in asset allocations.
Why investors should recognize key trends in US Treasuries
Last week, June 6–13, we saw yield increases for all coupon-bearing Treasury maturities except for 20- and 30-year maturities.
Must-know: Charles Evans discusses monetary policy in Istanbul
The Fed’s main policy tool, the funds rate, has been at near zero levels since December, 2008.
Ray Dalio: Bonds Haven’t Had a Bear Market in Decades!
“The potential for relatively big losses in bonds worries us because bonds effectively haven’t had a bear market in decades,” said Ray Dalio.
Will November Jobs Report Give Fed the Green Light to Hike Rates?
Fed policymakers are watching the job data closely, as it gives them insight as to whether the US economy is strong enough to withstand interest rates hikes.
Why Treasury and mortgage rate spreads hit historic highs
The interest rate spread between 10-year Treasury securities (IEF) and 30-year conventional mortgages (VMBS) was at historic highs at the end of 2008 and the beginning of 2009
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.
Assessing the long-term structural issues plaguing the US
The improving economy still faces long-term structural issues like slow wage growth, below-trend consumption and a shrinking labor force participation rate.
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: 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.
Why liquid alts may be preferred in a rising rate environment
Liquid alts provide a way to generate income while preserving capital in the face of an anticipated rise in interest rates.
Asset class analysis: Measuring up TIPS as an inflation hedge
I’m not that enthusiastic about this asset class because TIPS are currently not cheap. In fact, in this environment the real return on a TIP, i.e. how much money an investor gets back after inflation – is actually negative.
What Happened at the US Treasury Auctions in the Week Ending June 10?
It’s expected that the Fed may increase the interest rate soon, and 30-year Treasury bonds auction are closely watched by stock and bond investors.
Use caution when investing with a barbell fixed income strategy
You’ll find that the principal appreciation from falling rates at the long end (IEF)(VCLT) may make up for a large part of the shortfall in yields at the short end (SJNK).
What Caused the Muni Defaults in 2016?
In 2016, Puerto Rico defaulted on constitutionally guaranteed GO (general obligation) bonds. On May 3, 2017, Puerto Rico filed for Title III bankruptcy.
Bonds Could Underperform In 2015
Interest rates and bond yields are already at very low levels. Inflation could pick up and lead to a rate hike. So, bonds could underperform going forward.
Must-know: Divergence is the new trend in the global economy
Economic growth is strengthening in some parts of the world, while it’s slipping in others. In other words, as I mentioned in a post earlier this week, the major trend in the global economy is one of increasing divergence, rather than slower growth.
The Fed ends its asset purchase program at the October FOMC meeting
In December 2008, when the U.S. economy entered its dreadful recessionary phase, the Federal Reserve (or Fed) reduced the federal funds rate to nearly zero in order to stimulate household and business spending and support economic recovery.
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.
Where Are Bond Markets Headed?
Rising US-China trade tensions have caused all assets, and especially bond markets, to move considerably over the last few sessions.
Building with Buffer: The Case for Bonds
Bonds and stocks are negatively correlated. This is why bonds can act as a ballast in your portfolio, and thus the case for bonds is still strong while building with buffer.
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 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%.
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.
Why Bond Markets Were Weak Last Week
Positive economic data, higher chances for tax reform, and the possibility of a market-friendly Fed chair spelled trouble for the US bond markets last week.