BTC iShares iBoxx USD Investment Grade Corporate 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.
The Great American Deleveraging: Fact or Myth?
The great American deleveraging has largely been limited to the financial sector (XLF) (IYF). Non-financial debt is still much higher than historical averages.
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.
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.
High-Grade Bond Yields Rose as Spreads Touched Their Lowest Level
Last week, high-grade bond yields rose after upbeat US inflation and retail sales data raised the possibility of a rate hike by the year’s end.
Yields on Investment-Grade Corporate Bonds Remain Low
If spreads are rising or widening, credit conditions can be assumed to be worsening. Spreads widen when growth is slow and economic conditions worsen.
Investors keep providing liquidity to investment-grade bonds
While issuers’ activity waned last week, many investors continued to pore over the new issues that hit the corporate bond market (LQD).
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.
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.
Structural Considerations Could Mean Lower Yields in the Future
Many structural considerations are likely to keep yields low in the future. Demand for Treasuries and bonds is likely to be more than the supply in the next two years.
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 […]
Increased Life Expectancy Means A Longer Investment Horizon
Increased life expectancy means a longer investment horizon. With life expectancy increasing, young investors should invest in equities aggressively.
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.
The Federal Funds Rate: Why The US Dollar Could Appreciate Further
The federal funds rate is a tool that the Fed uses to control the interest rate in the economy. The rate has been close to zero for over six years.
Must-know: Future impacts of financial stability measures
The Fed currently uses considerable staff resources in monitoring financial markets for risks arising from financial instability.
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.
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.
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.
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.
How to Ballast Your Portfolio with Bonds
Municipal bonds (or munis) were the best performers in 2015 with returns of 3.2%. Meanwhile, investment-grade corporate bonds (LQD), long-dated Treasuries (TLT), and high-yield bonds (HYG) all gave negative returns in 2015.
Where Can You Find Relative Value within Fixed Income?
Where’s the relative value within fixed income? High yield bonds appear relatively attractive.
Risk-Reward Ratio Is in Favor of Emerging Market Debt
Emerging market debt (EMB) has attracted investor’s attention as a higher-yielding alternative in a world where yields are quickly falling below zero.
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.
Letting Alternative Investments Hedge Your Returns against Deflation
An alternative investment is an investment in asset classes other than stocks, bonds, and cash that seeks to provide a hedge against various market risks.
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.
Why investment-grade bond issuance last week beat expectations
Investors willing to take a little higher risk than what they find in Treasuries, if they’re in search of higher returns, can consider investing in investment-grade corporate bonds.
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 did investors give US debt markets the thumbs down?
Volatility, or the index commonly known as the “fear factor,” surged over 34% to 17.03 in the week ending August 1—this was the highest level in almost four months.
Risks you should know before investing in international bond funds
In this article, we’ll discuss some of the risks an investor must consider before investing in international bonds. Some of these risks are unique to this asset class.
Why Kocherlakota concludes that the FOMC is underperforming
Even among those who have jobs, the fraction of people working part-time but who would like to work more hours is higher than the historical average.
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.
Cyclical and structural unemployment in a recovering economy
A major disagreement among Fed economists is how to classify unemployment in the economy. Unemployment can be caused by cyclical or structural factors. A number of Fed officials, including Janet Yellen, believe that there’s evidence of significant “labor market slack.” This is caused by cyclical factors.
Why Does Fixed Income Look Promising?
Under the current uncertain economic circumstances, investors searching for higher yield might turn to fixed income.
Flight from quality and duration: Going to Vegas with SNLN and BKLN
Ultra-short duration: Avoiding losses in a rising rate environment The below graph reflects changes in popular fixed income ETFs since the 2008 crisis. As the bond market rally has softened and interest rates have risen, longer-duration bonds, as reflected in the iShares Core Total U.S. Bond Market ETF (AGG), with a duration of 5.11 years, […]
Why is leverage a double-edged sword for companies like Apple?
Corporate bond issuance in the U.S. reached $1.4 trillion in 2013, according to the Securities Industry and Financial Markets Association (SIFMA), a new record.
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.
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.
Issuance of Investment-Grade Corporate Bonds Fell Last Week
Baxalta, Energy Transfer Partners, JPMorgan Chase, Occidental Petroleum, and Cardinal Health were among the biggest issuers of investment-grade corporate bonds last week.
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.
Who will replace Bernanke as the next Fed Chairman? (Part 3)
Continued from Part 2 Because Bernanke will step down, there’s great speculation on who will replace him So who is it likely to be the next Bernanke? The case for Summers Between the two, Summers certainly has more excitement building around him than Yellen. Summers also has Wall Street credibility—at least more so than Yellen. […]
A Look at Popular Post-Brexit Investments
The uncertain global environment created after the Brexit vote made investors hope for a perpetual low rate environment. The prospect of further easing from central banks in the developed markets has spurred strong demand for government debt.
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.
Why Yankee Bank Issuers Find US Corporate Debt Attractive
A lower cost of borrowing and tighter spreads have attracted foreign banks to flock to the US corporate debt market.
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%.
Is the simple life cycle model practical in the current scenario?
Being a large capitalist economy with relatively smoothly functioning markets, some degree of inequality is expected.
Corporate bond yields rise, spreads fall in 2015
Low-yielding Treasuries made corporate bonds attractive, and investors turned to higher yielding investment-grade and high-yield debt and related ETFs.
Must-know: The Treasury International Capital report
Net foreign purchases of long-term securities came in at $19.4 billion.
Why did corporate bond yields fall last week?
Yields on US sovereigns fell in the week ended March 13. Along with Treasury yields, corporate bond yields also fell.
Why investors see strong fundamentals in investment-grade bonds
Treasury yields and U.S. investment-grade bond yields usually move in the same direction. Last week, corporate investment-grade bond yields followed cues from the U.S. Treasuries market. Treasury yields (TLT) had fallen over the week on higher demand for safe-haven securities. They also fell as a result of the European Central Bank’s (or ECB) dovish monetary policy stance.
Must-know: How the Fed may deal with its bloated balance sheet
The Fed’s balance sheet size has bloated to $4.3 trillion as on May 14, 2014, compared to pre-crisis level of $870 billion seen on August 1, 2007.
Improving consumer confidence suggests better capital spending
Consumer confidence, while low, is improving. During the first half of 2014, the Conference Board’s measure of consumer expectations averaged a little below 82, a material improvement from the previous four years.
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 Elliott Management Might Be in Trouble
Last week, Elliott Management filed its 13F for the first quarter of 2020. In the last quarter, the hedge fund’s AUM was worth around $73.15 billion.
The difference between High Yield Bond ETFs and Investment Grade Bond ETFs
The corporate bond market is divided into two broad categories: the high grade market and the high yield market.
The Difference between Corporate Bonds and Treasuries
Bond investors should understand the difference between Corporate Bonds and Treasuries. Below is a list of the key differences between the two.
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.
Credit risk: Why high-yield bonds act like equities
High-yield debt could do well, but there are risks. The Fed shifting toward more contractionary monetary policy poses two risks to high-yield debt.
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.
An investor’s guide to the US leveraged financial market
According to the Securities Industry and Financial Market Association, SIFMA, the total U.S. fixed income market size is about $38.6 trillion.
Comparing leveraged loans and high yield bonds: Credit rating
Credit rating measures the credit-worthiness of a debtor with respect to its financial and operational stability. Rating agencies such as Moody’s and Standard & Poor’s specialize in rating credit to government agencies and corporates.
Comparing leveraged loans and high yield bonds: Key distinctions
Leveraged loans (BKLN) are almost always secured or backed by a specific pledged asset or some form collateral. On the other hand, high yield bonds (JNK) may be secured or unsecured.
Comparing leveraged loans and high yield bonds: Debt terms
Another item that differentiates leveraged loans from high yield bonds is “covenants,” or the financial health metrics that issuers must adhere to.
Know how to calculate and interpret your bond’s duration
Duration, in effect, takes into account various factors while providing with an assessment as to the price sensitivity of the bond to interest rate changes.
The default rate and its relation to bond and loan prices
Default rate is a key metric of credit risk and is defined as the risk that the counterparty will default on its financial obligations.
Using sector rotation during rising interest rates
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 […]
Must know: How credit rating affects default rate and bond price
A lower credit rating means higher risk, and therefore, higher yield as investors look for the premium to take the risk and vice versa.
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.
Key differences between high yield and investment-grade bonds
Investment-grade corporate bonds (LQD) carry inferior yields compared to high yield bonds (JNK) with the same maturity date.
Why did the T-Notes auction see a sudden rush for 10-year notes?
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.
Credit ratings in expansions affect companies like Thermo Fisher
According to the National Bureau of Economic Research (or NBER), the trough of the recession was reached in June 2009, and the economy began expanding in Q3 2009.
Why low interest rates have sparked record debt issuance
Improvement in the up/down ratio commenced one quarter prior to the formal demarcation of the end of the recession.
Key benefits of municipal bond investments for your portfolio
The chief advantage of investing in municipal bonds (VRD) is that the interest income on most of them is exempt from federal income taxes and often state and local taxes as well.
Why primary risk factors are important for fixed income investing
A portfolio’s exposure to yield curve twists—non-parallel movements in the yields curve—can also be approximated by using the present value distribution of cash flows.
Recommendation: You can learn from the yield curve of 1989–1990
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.
Must-know: Why the taper caused yields to increase
Much of the current theoretical base of finance assumes that investor expectations are homogeneous. In other words, all the investors expect a similar outcome.
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.
Mester weighs in on using “sticky” prices in inflation models
According to Mester, core price inflation in the services sector has ranged between 2.25% and 2.50% since 2012. A deceleration in core goods prices has resulted in headline inflation falling below the Fed’s long-term inflation goals.
Why John Williams says monetary tightening won’t happen right away
Mentioning that the economic outlook for the U.S. was “quite good,” Williams said the Fed’s monetary policy would slowly revert to normal as the economic recovery progresses.
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 Fed policies influence inflation but not employment long-term
In this part of the series, we’ll discuss Mester’s views on how monetary policy decisions impact the Fed’s dual mandate of ensuring price stability.
Why revisions in inflation measures impact ETF investors
In this part of the series, we’ll discuss Mester’s views on the second research question posed to the audience: how should monetary policy makers incorporate revisions to PCE inflation into their policymaking framework?
Recommendation: Why equities are a good hedge against inflation
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.
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.
Corporate debt trends—have high yield investors had enough?
However, corporate borrowers in the primary markets continued to take advantage of the low yields environment.
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.
Analyzing secondary trends in high yield debt securities
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
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.