ProShares Short 20+ Year Treasury
How the Yield Spread Changed the Outlook for the Economy
In the May LEI report, the yield spread had a net impact of 0.14 (or 14.0%).
Will Yield Spreads Continue to Decline?
The US bond markets remained under selling pressure as bond yields, especially at the short end of the curve, continued to shoot up, while the long-term yields remained subdued.
Why Interest Rate Spreads Are Decreasing Again
In April, the yield spread has declined to the lowest level since the Great Recession and could decline further if inflation doesn’t accelerate.
How the Yield Curve Could Keep Flattening
Long-term yields (TLT) have not appreciated to the same extent as short-term yields, in response to interest rate hikes and changes to the dot-plot.
Analyzing the Yield Curve’s Ongoing Flatness
A December rate hike and a flattening yield curve The Fed rolled out another rate hike at its final meeting of 2017. The target range for the federal funds rate was increased by 0.25% to 1.25%–1.50%, and the Fed has signaled three more rate hikes in 2018. Two members dissented to the rate hike due to lower […]
Why Decreasing Credit Spreads Are a Cause for Concern
The November Conference Board report, which takes October data into account, reported the credit spread at ~1.2—an improvement from the September reading of ~1.1.
Are Declining Yield Spread Worries Done for Now?
At the last FOMC (Federal Open Market Committee) meeting on September 20, 2017, Fed members decided to initiate a balance sheet normalization process starting in October.
How Credit Spreads May React to the Fed’s September Statement
Another rate hike in 2017 The FOMC’s (Federal Open Market Committee) meeting on September 20 changed the outlook for bond markets (BND). It suggested that the Fed could be looking at another rate hike by the end of this year, along with a balance sheet unwinding program. Gains in August inflation (TIP) boosted Fed members’ […]
Why Interest Rate Spreads Are Growing
Reduced odds for another rate hike in 2017 Fears of flattening yield curves and rising interest rates have completely vanished in recent weeks. The FOMC’s (Federal Open Market Committee) July meeting statement confirmed the concerns about lagging inflation (TIP), making another rate hike in 2017 less likely. Focus has turned to the Fed’s balance sheet reduction […]
How to Hedge Your Portfolio against Interest Rate Risk
Investors generally look for short-term duration bonds in the midst of a rising interest rate scenario.
Should You Short European Bonds due to Taper Talks?
Like their equity peers, bonds can be short-sold as well. You can do it by either shorting an ETF or investing in an inverse ETF.
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 Treasury yields climbed and stocks rose to a new record
Last week’s upbeat economic data resulted in higher Treasury yields. Yields from one year to 30 years rose on the better than expected data. 30-year Treasury yields rose the most, by 14 basis points to 3.23%. Ten-year Treasuries rose by 11 basis points to 2.46%.
Why was indirect bidder demand for 30-year bonds higher?
The 30-year bond is the longest maturity Treasury security.
Assessing demand fundamentals for the latest T-bond auctions
The 30-year T-Bond auction was a reopening of May’s 30-year bond issue. The underlying 30-year T-Bond was auctioned on May 8 at a coupon of 3.375% to mature on May 15, 2044.
Were bond prices too high at the 10-year Treasury notes auction?
The ten-year T-note auction was a reopening of the ten-year note issue auctioned last month. The underlying ten-year T-note was auctioned on May 7.
Why does Sandra Pianalto think the economic progress to be slow?
Although GDP grew at a little under 3.5% in the second half of 2013, up from an average rate of 2% in the past three years, inflation remains at ~1% level, well below the Fed’s long-term target of 2%.
Will falling credit card debt affect stocks like Walgreens?
Consumer credit figures for February will be released by the U.S. Federal Reserve on Monday, April 7. It’s a monthly release, and the headline number for the report is total consumer debt.
A guide to purchasing managers’ indexes for ETF investors
As we’ve seen in this series, there are three major Purchasing Managers Index (or PMI) reports issued in the U.S.
Yellen’s speech eases investor concerns about an interest rate rise
Investors relieved Monday, March 31 saw an important development relating to the jury selection of the Apple–Samsung patent law suit. It was also the day that the current Federal Reserve Chair Janet Yellen spoke at a community reinvestment conference in Chicago. The markets had been eagerly waiting for Yellen to explain her recent comment that […]
Why do key purchasing managers’ index readings move markets?
In this series, we’ll focus on the manufacturing PMI issued by three major institutions, measuring manufacturing activity in the U.S.
Is qualitative forward guidance better than no guidance at all?
At the recently concluded Federal Open Market Committee (or FOMC) meeting of the U.S. Federal Reserve, the Fed said it would remove the quantitative thresholds from its policy statement.
Why Richard Fisher calls for a 3rd Fed policy akin to Abenomics
In his speech to the London School of Economics, Dallas Fed President outlined how “fiscal drag” is holding back GDP growth.
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.
This week’s releases could benefit Danaher and United Technologies
The Chicago Business Barometer is a closely watched leading indicator of U.S. economic activity, and it’s based on a survey panel of purchasing or supply-chain professionals.
Why the Fed’s dual mandate is attainable with a balanced approach
The Fed’s dual mandate is balancing inflation with unemployment—that is, achieving both maximum employment and price stability.
Hedging: You can profit from rising rates with fixed income ETFs
Should interest rates rise equally in the five-year part of the yield curve as the 20-year part of the yield curve, HYG and JNK would likely decline roughly 3.98% and 4.20% in value.
Bear strategy: Profit from rising rates with fixed income ETFs
Investors could consider hedging their short-term duration risk (HYG: 3.98 years, JNK: 4.20 years) with a short position in longer-dated bonds.
Fixed income ETFs: The longer the duration, the higher the loss
The higher the expense ratio, the deeper the decline in an investment’s value. Also, the higher the period of investment, the greater the impact of expense ratios due to the compounding effect.
Exposure to junk bonds: How much should you hedge?
Junk bonds are high yield bonds issued by below–investment grade corporations. Due to the low ratings and high risk of default attached to these bonds, they’re popularly called “junk bonds.”
Why worry when you can hedge your fixed income portfolio?
An investor may consider investing in leveraged loan ETFs or Treasury floating rate notes (or FRNs), depending on their risk appetite.
Comparing investment-grade loans and Treasuries: Credit ratings
Credit ratings are a measure of the creditworthiness of a borrower. They’re assigned by credit rating agencies like Standard & Poor’s or Moody’s.
Comparing investment-grade loans and Treasuries: A key guide
Treasuries are debt securities issued by the U.S. government through a system of periodic auctions. These securities are considered one of the safest fixed-income investments.
Must-know: Is the economic glass half full or half empty?
Outlook The week started with somewhat disappointing news: the Purchasing Managers’ Index (or PMI) for January, at 51.3, came in significantly lower than December’s figure, by 5.2. Despite there being an increase of 3.2 in consumer spending, markets anxiously awaited the employment status report issued on Friday. This is because—though the economy had expanded—the slowing […]
Atlanta Fed Business Inflation Expectations: Is inflation rising?
What is the “Atlanta Fed Business Inflation Expectations Survey”? The BIE was created to measure businesses’ inflationary sentiments for the year ahead.
Recommendation: Read between the lines of the latest PMI
January’s PMI declined sharply, by 5.2 points, from December’s 56.5 level. The most significant decreases were observed in new orders (down 13.2 points to reach to 51.2) and production (down 6.9 points to reach to 61.7).
Why do lower auto sales still support lower bond prices?
Light vehicle auto sales were released last week. The light vehicle annualized selling pace came in at 15.2 million in January. This was at about the same levels as in January 2013.
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.
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.
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 is the Treasury offering floating rate notes, or FRNs?
By definition, the interest on floating rate notes (or FRNs) is variable. Why, then, in an environment where all indicators point to rising future interest rates, is the Treasury issuing them at the cost of the taxpayer?
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 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.