Regulations have been slowly destroying the bond market in America. But, new algorithmic trading computers are stepping in to modernize the market. Bond trading desks are relying more on computer driven trading all the time. The FT reports: While debt issuance has surged, traders say liquidity has deteriorated sharply in recent years, as a torrent of regulations forced banks to reduce their trading desks. Putting precise numbers around this decline is tricky, as liquidity is an ephemeral concept. Asking a dozen traders will typically yield at least as many answers. But broadly speaking, … [Read more...]
Young Research & Publishing has been providing research and insights on bonds to institutional investors, corporate financial officers, business owners, and individual investors for over four decades. Richard C. Young started Young Research & Publishing in the 70s to publish the authoritative Young’s World Money Forecast, a 50-page monthly investment report for institutional land high net worth investors. Today, our research on bonds is geared toward investors in or nearing retirement who are looking to preserve and protect wealth.
Bonds Break Through 3%
10-year Treasury yields cracked through 3% for the first time since 2013. With short-term yields on the rise, and now long-term yields starting to follow suit, the yield drought appears to be coming to an end. … [Read more...]
The Rise of the Robot Bond Trader?
For years PIMCO was driven by the investing acumen of Bill Gross and Mohamed El-Erian. After an acrimonious split with El-Erian in 2014, and unceremoniously dumping Gross the same year, PIMCO's plan is to replace these titans of the bond industry with some algorithmic software and an office in trendy Austin, Texas. The Wall Street Journal's Justin Baer writes: Pimco’s mutual funds had $33 billion in net inflows in 2017, reversing a four-year stretch of client withdrawals, Morningstar said. While Pimco remains one of the world’s biggest investors, with about $1.7 trillion in assets, the firm … [Read more...]
Why I’m Buying Vanguard GNMA
You always need to study your downside protection and do what’s difficult to do. Recently, I added half of my 2017 SEP-IRA contribution to Vanguard GNMA—a sizable addition to my overall GNMA position. I didn’t do it because I feel like I can predict where interest rates are headed. Who can? It’s all fine and good when the talking heads spout off about three or four rate increases this year and more to come next year, but in reality their advice doesn’t cost them a penny. If they’re wrong and the market crashes, like it did twice already this century, will they be there for you, or me for … [Read more...]
Ignore Bonds (at Your Peril) and Be Average, Like the Next Guy
Originally posted November 1, 2017. A phrase I often hear from prospective clients is, “I don’t understand bonds, but I know I need them, and that’s one of the reasons I’m talking with you.” There’s a lot of wisdom in that phrase. It’s like saying to your dentist, “I don’t understand root canals, but my tooth is killing me and I know I need one, and that’s the reason I’m sitting in this chair.” Knowing what we need is different from understanding how to do it. When I think back to when I first joined Dick Young’s management firm in 1998, he had a huge following of investors seeking … [Read more...]
Vanguard GNMA: There When You Need It
Yesterday the S&P 500 fell by 2.5%. At the same time, the Vanguard GNMA Index fund was up 0.2%. Having powerful counterbalancing bond funds like Vanguard GNMA in your portfolio can prevent you from taking massive hits to your wealth. Originally posted on Yoursurvivalguy.com. … [Read more...]
Will 3% Bond Yields Sink the Stock Market?
If yields rise above 3%, stocks will end the year down. That is according to Jeffery Gundlach, manager of the Doubeline Total Return Bond Fund. Gundlach is of course a bond fund manager, so one should take his views on stocks with a grain of salt, but he may not be wrong. Three percent yields aren’t high by historical standards, but global central banks have kept rates so low for so long that economies may have become overly dependent on ultra-low rates. Bloomberg reports: If yields on the 10-year Treasury break above 3 percent, there’s a high chance U.S. stocks will end the year down, … [Read more...]
Investors Flee High-Yield Debt
When economic growth booms, Treasury yields often rise and the prospects for junk bond issuers tends to improve. In an environment where interest rates are rising because economic growth is strong, junk bonds tend to outperform Treasuries. Spreads (difference in yields) on junk bonds narrow as the risk of default falls in a better economy Don’t tell that to the crowd who has been reaching for yield in junk bonds though. As the FT reports, high-yield debt redemptions reached their second-largest net outflow, $10.9 billion last week. Central banks have distorted risk free yields for so long … [Read more...]
Bond Bear Market Picking Up Steam
The bear market in bonds appears to be picking up steam. Strong employment and wage numbers this morning have pushed long-term Treasury yields past 2.8%—their highest level since 2013. Since the start of the year, 10-year Treasury rates have increased by 43 basis points or 0.43 percentage points. From a charting perspective, there isn’t much support for bonds until rates hit 3%. A welcome development in our view, but a not so pleasant development if you are among the investors who have reached for income by taking duration risk in the bond market. As of this morning, the Vanguard Long-term … [Read more...]
The End of the Great Bond Bull Market
In September of 1981, 10-Year Treasury rates peaked at almost 16%. From that high, interest rates went on a three-and-a-half decade secular decline that colored every asset class in the world. Bond prices benefited from the decline in interest rates, but so did stocks, real estate, private equity, venture capital, and art among other asset classes. In July of 2016, the multi-decade bull market in bonds ended when the 10-year Treasury rate hit 1.31%. Rates moved up following the 2016 low, but only recently have they broken above their three-decade downward sloping trendline. The breakout may … [Read more...]
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