BTC iShares 7-10 Year Treasury Bond ETF

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.

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 (IAU) (GLD) prices usually have a strong negative correlation with the US dollar (UUP). Gold, like other commodities, is denominated in the dollar.

The CBOE Volatility Index suddenly rose 6.0% on November 9, 2016, after it was clear that Trump had unexpectedly clinched the election.

On March 26, the U.S. Fed released bank stress test results indicating which banks can increase dividend payouts and share buybacks.

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.

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.

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.

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.

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.

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.

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.

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.

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.

In an environment of generally decent, albeit recently disappointing, growth and gently rising yields, high yield offers attractive potential in a yield-starved world.

US Treasury yields moved uniformly upwards across the yield curve in the week ended June 5, 2015.

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.

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.

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 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.

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 […]

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.”

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.

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.

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.

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.

Where’s the relative value within fixed income? High yield bonds appear relatively attractive.

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.

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.

The 2s30s spread is the difference between the yield on the 30-year bond (TLT) and the yield on the two-year bond (SHY).

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.

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.

Investors seeking exposure to investment grade or high yield corporate debt have increasingly been using fixed income ETFs.

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.

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%.

Global uncertainty, Brexit, and the prospect of further easing from central banks in developed markets have spurred demand for government debt.

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

The Fed’s main policy tool, the funds rate, has been at near zero levels since December, 2008.

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

The improving economy still faces long-term structural issues like slow wage growth, below-trend consumption and a shrinking labor force participation rate.

When real interest rates decline, the prices of long-term bonds increase because bond yields and prices move in opposite directions.

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.

In 2016, Puerto Rico defaulted on constitutionally guaranteed GO (general obligation) bonds. On May 3, 2017, Puerto Rico filed for Title III bankruptcy.

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.

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.

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.

Rising US-China trade tensions have caused all assets, and especially bond markets, to move considerably over the last few sessions.

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.

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.

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%.

The large drop in crude oil prices gave consumers more money to spend. Demand should be higher due to robust consumer sentiment data.

Last week, U.S. economic data covered a number of sectors, including housing, employment, manufacturing, and inflation. All three housing indicators released last week were positive, and initial jobless claims once again beat market expectations. The CPI for September came in at an annualized rate of ~1.7%, the fourth straight monthly decline.

Fostering price stability is one of the Fed’s most important goals.

Corporate investment-grade borrowing marginally declined to $62.34 billion in the week to March 13, 2015, the second-highest issuance in 2015.

The real estate sector (VNQ) has been lagging in performance in 2018. It’s seen a year-to-date loss of 6%.

An operational switch could help, given zero-bound short-term yields, and long-term yields dampened by low growth and inflation expectations.

In the US, the budget balance reported a surplus for December 2014. It reported a shrinking deficit the previous month. The surplus was $1.9 billion for December 2014.

Low yields abroad could keep Treasury yields low. The ten-year US Treasury is currently yielding ~2.4%—compared to 0.9% of the German bund.

The good news is that while the recovery has impressed few, it has been much better than the alternative we were all facing six years ago, and there is still time to avoid, or at least mitigate, the pending retirement crisis.

In the June FOMC meeting, the weighted average forecast was much lower at ~70 basis points. Both stocks and bonds rallied after the meeting.

The US Treasury (TLT)(GOVT) yields have been driven mainly by the Greek debt fiasco and central bank actions. Yields started falling early this year.

The US-China trade war escalated very quickly this month. This has caused global equities to plunge and safe havens like gold and treasuries to surge.

The negative interest policy of the central banks is casting government bonds as a futile choice for investors compared to stocks and gold. As a result, bond prices dipped and yields started rising.

In the policy statement, the BOJ said that it would continue its second round of monetary easing “as long as it is necessary for maintaining that target in a stable manner.”

So how can an investor use sector rotation during a rising rate period?  By rotating some assets out of fixed income sectors that tend to underperform in this kind of environment and into sectors that tend to benefit.  Typically during rising rate environments, the Fed is raising the federal funds rate in response to high […]

The National Federation of Independent Business (or NFIB) will release the Small Business Optimism Index on Tuesday, March 13.

We can attribute the lower yield recorded in February compared to January to higher demand for safe-haven assets like U.S. Treasuries, which have increased in 2014.

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.

Monetary and fiscal policies are now hopelessly intertwined. In other words, when the Fed finally decides to raise rates and shrink its balance sheet, it will seriously exacerbate the government’s already sizable deficit.

This series will analyze how mortgage interest rates have behaved with respect to Treasuries and the reasons for this correlation.

The interest rate spread is the difference between Treasury yields (TLH) and interest rates on mortgages (VMBS). Interest rate spreads tend to widen in times of economic uncertainty.

Duration measures a portfolio’s sensitivity to parallel shifts in the yield curve. However, parallel shifts in the yield curve rarely, if ever, occur.

While the yield curve is normally upward-sloping, it might flatten excessively in certain special conditions. “Flattening” refers to the contraction of differences in yields across maturities.

Last week, the demand for U.S. Treasuries rose primarily on heightened global risks. Fears of a recession in Germany and Europe sent ten-year German government bond yields tumbling to 0.74% last week, their lowest ever.

The Fed’s communication of its monetary policy to the market was remarkably unclear during much of its history.

Much of the current theoretical base of finance assumes that investor expectations are homogeneous. In other words, all the investors expect a similar outcome.

This part compares the performance of domestic bond funds investing in the U.S. Treasury securities with international bond funds, which invest in sovereign bonds issued by foreign governments.

On Wednesday, major U.S. stock indices increased sharply on the Fed’s dovish slant. However, stocks moved into the red again on Thursday.

It’s important for investors to stay abreast of investment-grade bond market trends. These trends can provide investors with relatively safer options when market risks and volatility (VXX) increase.

Treasury yields declined primarily due to external factors, despite relatively bullish economic data. Bond yields and prices move in opposite directions.

Most professional advice is focused on strategic asset allocation. It advises exposure to U.S. equities (SPY) and bonds (BND). The allocations are based on the investor’s financial goals and risk appetite.

Many investors tend to move in and out of positions in an inefficient way, reducing their potential profits. This may be because individual investors are often overly confident in their own abilities to beat the market.

While Russ doesn’t foresee a bond market meltdown, he does expect that rates will rise in coming years and he offers three suggestions for positioning equity portfolios in preparation.

The Fed’s third Federal Open Market Committee (or FOMC) meeting of the year took place June 17–18. Always a market-moving event.

Do you avoid the stock market? Shun diversification? Trade inefficiently? Russ and guest blogger Nelli Oster — an investment strategist on Russ’ team — examine three common bad behaviors among investors.

Investor flows into high yield (HYG) mutual funds reversed their trend in the week ended June 27. High yield (JNK) mutual funds recorded net inflows of $619 million in the week

The Fed is looking to normalize monetary policy by raising the federal funds rate. Interest on excess reserves (or IOER) would be the primary tool for bringing the federal funds rate into the target range. The Fed may also use an overnight reverse repo (or ON RRP) facility and other supplementary tools to control the federal funds rate.

The ten-year Treasury (IEF) note auction is of great interest to stock and bond (BND) market participants. Ten-year Treasury yields are benchmarks for many interest rates, including mortgages (IYR)(VNQ) and equity risk premiums (QQQ).

If you have a bond portfolio that’s heavy with long-term bonds, you can potentially reduce your interest rate risk by rebalancing your portfolio to increase exposure to short-term bond ETFs.

U.S. investment-grade bonds can provide investors with a safe and steady income stream. They’re issued by the U.S. Department of the Treasury and corporates. The issuers have a very high ability to service the debt issued. There’s little risk of default.

Economic data is one of the most important Treasury yield drivers. Disappointing data usually results in falling yields. During a downturn, investors prefer safer assets like U.S. Treasuries (TLT) (IEF) (UST) and investment-grade bonds. This usually increases their prices. It causes yields to fall.

While longer-term interest rates have remained stable, the prospect for an early Fed tightening is exerting downward pressure on the prices of shorter-maturity Treasury bonds.

Other commodities have suffered as well: Most agricultural commodities are down between 5% and 10% year-to-date, and oil prices have slid on less angst over Iraq and the Middle East.

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.

The BRICS countries are slowly but surely drifting away from the 20th Century monetary and political structures setup by the U.S. and Europe, as characterized by Russia’s G8 membership being revoked in the wake of the events in Crimea.

While Russ would be wary of seeking income at all costs and ignoring valuations, there’s one “bond-like” equity market segment that he believes is worth pursuing: International and global dividend stocks.

With most of the developed world at near zero or negative yields, the contribution of lowering interest rates to the velocity of money is diminishing.

Against market expectations, yields across the curve dropped considerably last week, leading to a rally in bond market prices that benefitted all major bond ETFs.

The U.S. Treasury Department issues Treasury securities of varying maturities to finance government debt. The yield on these securities is determined through a public auction process

Tarullo argued that the productivity growth in recent years has been disappointing. He supported his argument with statistics.