BTC iShares iBoxx USD Investment Grade Corporate 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.

The great American deleveraging has largely been limited to the financial sector (XLF) (IYF). Non-financial debt is still much higher than historical averages.

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.

JOLTS (the “Job Openings and Labor Turnover” report) produces monthly estimates of job openings, hires, quits, layoffs and discharges, and other separations.

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.

If spreads are rising or widening, credit conditions can be assumed to be worsening. Spreads widen when growth is slow and economic conditions worsen.

While issuers’ activity waned last week, many investors continued to pore over the new issues that hit the corporate bond market (LQD).

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.

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.

Bond yields and prices move in opposite directions. Due to the increase in yields last week, returns on investment-grade bonds were negative.

Investment-grade bond (AGG) funds saw net inflows of $1.53 billion in the week ending May 1, 2015.

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.

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. With life expectancy increasing, young investors should invest in equities aggressively.

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.

This article considers the possibility of rising rates and the case for taking a bearish view on bond prices.

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.

The Fed currently uses considerable staff resources in monitoring financial markets for risks arising from financial instability.

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.

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 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.

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

Emerging market debt (EMB) has attracted investor’s attention as a higher-yielding alternative in a world where yields are quickly falling below zero.

U.S. investment-grade corporate bonds (LQD) weathered higher market volatility well in 2014. They’ve been a steady source of returns for investors.

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.

This article considers the Federal Reserve Bank’s continued struggle to reach its inflation target and the implications for fixed income investors.

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.

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.

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.

This article considers the ongoing decline in the federal budget deficit and considers the implication for fixed income investors.

Investment-grade bond yields usually follow cues from the Treasuries market. With a fall in Treasury yields, investment-grade corporate bond yields also fell.

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.

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.

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.

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

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.

Under the current uncertain economic circumstances, investors searching for higher yield might turn to fixed income.

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, […]

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.

For investors, the implications are not to load up on bonds, but to tactically look for areas of relative value within fixed income.

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.

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.

Baxalta, Energy Transfer Partners, JPMorgan Chase, Occidental Petroleum, and Cardinal Health were among the biggest issuers of investment-grade corporate bonds last week.

In the coming months, yields are likely to trend higher as the Fed moves closer to ending the taper and tightening monetary policy.

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. […]

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.

When uncertainty rises, equity markets become volatile, and bond spreads rise. Brexit is likely to have a similar effect on capital markets.

A lower cost of borrowing and tighter spreads have attracted foreign banks to flock to the US corporate debt market.

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%.

Being a large capitalist economy with relatively smoothly functioning markets, some degree of inequality is expected.

Low-yielding Treasuries made corporate bonds attractive, and investors turned to higher yielding investment-grade and high-yield debt and related ETFs.

Net foreign purchases of long-term securities came in at $19.4 billion.

Yields on US sovereigns fell in the week ended March 13. Along with Treasury yields, corporate bond yields also fell.

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.

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.

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.

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.

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 corporate bond market is divided into two broad categories: the high grade market and the high yield market.

Bond investors should understand the difference between Corporate Bonds and Treasuries. Below is a list of the key differences between the two.

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.

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.

Bond prices and interest rates have an inverse relationship. If an interest rate increases, the price on a bond declines, and vice versa.

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.

Bonds are highly sensitive to credit risk—other than U.S. Treasury securities, which are more prone to interest risk. Credit risk hugely varies.

Credit ratings assess the credit-worthiness of a borrower and assign a grade based on the borrower’s business operation and financial stability.

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.

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.

According to the Securities Industry and Financial Market Association, SIFMA, the total U.S. fixed income market size is about $38.6 trillion.

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.

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.

Another item that differentiates leveraged loans from high yield bonds is “covenants,” or the financial health metrics that issuers must adhere to.

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.

Default rate is a key metric of credit risk and is defined as the risk that the counterparty will default on its financial obligations.

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 […]

A lower credit rating means higher risk, and therefore, higher yield as investors look for the premium to take the risk and vice versa.

The Mortgage Bankers Association’s (the MBA’s) Purchase Applications Index is a weekly measurement of home loan applications.

Investment-grade corporate bonds (LQD) carry inferior yields compared to high yield bonds (JNK) with the same maturity date.

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.

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.

Improvement in the up/down ratio commenced one quarter prior to the formal demarcation of the end of the recession.

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.

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.

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.

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

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.

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.

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.

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.

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.

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?

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.

This week is full of indicators, with most of them being measures of national-level economic activity.

However, corporate borrowers in the primary markets continued to take advantage of the low yields environment.

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.

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

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.