FOMO (fear of missing out) seems to be the dominant theme in the stock market YTD. Stocks are already up 4.2% in only 9 trading days, and on only one of those days has the stock market fallen. And fallen may be an overstatement. One of the major factors (though not the only one) that has enabled such a strong start to the year is the abnormally low level of long-term interest rates in the face of a domestic and global economy that looks to be humming. The 10-year Treasury rate remains below its 2018 high of 2.62%. Chasing return in stocks because bond yields are low has been an ongoing … [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.
My 2018 Investment Perspective
I’ve always been amazed at how quickly investors forget what it feels like to lose money. One of my favorite economists, whom will remain unnamed, is a constant stock market cheerleader. He’s never met a market he hasn’t liked. I love his optimism and I too believe, like he does, that Trump’s tax cuts will keep us chugging along for some time. But that doesn’t mean stocks will always rise like the sun. Where I take issue with this perma-bull economist is his call that the bull market in bonds is over. He also says that bonds, more than stocks, are in bubble territory. He takes the … [Read more...]
Are You Still Investing in Long Bonds?
Complacency is a dangerous foe to a successful investment program. After one of the least volatile years on record in the stock market, many equity investors are complacent today. Though it is discussed much less, so are bond investors. Long bonds are the dog that never seems to bite, but that doesn’t mean they aren’t dangerous. As the WSJ describes here, some investors don’t seem to mind the danger of bonds. The latest pillar supporting the U.S. Treasury market: everyday investors. Ordinary investors are a growing force keeping longer-term bond yields low, even as the Federal Reserve … [Read more...]
Will Tax Cuts Fuel a Rise in Bond Yields?
John Authers suggests that while the tax-cut is mostly priced into equity markets, the bond market could be in for a surprise next year if the reforms have the impact the GOP is hoping for. Bonds globally suffered a sharp sell-off on Tuesday, with little obvious news to justify. As the sell-off was widespread, it is hard to attribute this entirely to events in the US. However, it was noticeable that the rate effect swamped any tax cut effect. Rate-sensitive sectors such as real estate sold off most; financials were more robust. And the stock market overall dipped a bit. Once the details in … [Read more...]
Broke States Trying New Tricks to Wrangle Lending
With faith quickly disappearing in the ability of Illinois and Connecticut to pay their general obligation debts, the states are employing a new method that draws directly from tax revenues to secure financing. The Wall Street Journal editorial board provides the example of Puerto Rico as a warning that this gambit may not work out as well as intended. The editors write: Detroit’s Chapter 9 bankruptcy in 2013 set a precedent by subverting GO bondholders to pay public workers and retirees. Prior to Detroit, creditors considered GO bonds sacrosanct and figured courts would compel local … [Read more...]
Is This the Start of a Major Downturn or Just a Healthy Correction?
The FT reports on the sell-off in the $1.3 Trillion high-yield bond market. We wrote about the shifting landscape in the high-yield bond market last week. The high-volume sell-off in junk bond ETFs is continuing. High-yield bonds are on pace for their worst month since January of 2016, the month of the last major stock market correction. Even if you don’t invest in high-yield bonds, the market should be watched closely as it can be a harbinger of things to come in equity markets. Junk-rated debt has already lost 1.1 per cent in value so far during November, on pace for its worst month … [Read more...]
Junk Bonds go Bonkers
Bloomberg is reporting on the sell-off in high-yield bond ETFs (see here). Volume is soaring and prices are plunging. Part of the problem is the new structure of the high-yield bond market. High-yield bond ETFs have become the tail that can wag the dog. Yesterday, the dollar volume of the four big high-yield bond ETFs spiked to over 57% of the average traded value of the total high-yield bond market. The fast money crowd as well as yield chasers are the driver here. The fast money crowd favors junk bond ETFs over individual bonds because they are believed to have better liquidity. And … [Read more...]
Do You Know Dick Young’s Investment North Star?
As more money piles into stocks, there’s never been a better time to get acquainted with Dick Young’s investment North Star, the Treasury bill. Backed by the full-faith credit pledge of the United States government, the T-bill is your risk-free rate of return. To see the chart, click here, and roll your finger, left to right, from the mid-80s to today. Do you see a problem with today’s investment environment? It’s a lot different from when Dick Young began writing to you, as I explain when you click on the chart link above. Originally posted at Yoursurvivalguy.com. … [Read more...]
You’ve Never Seen a Market Like This
You know something in this market environment isn’t quite right when eight years into a bull market investors are still hanging on every word out of the world’s central banks. The WSJ reports on the upcoming tight-rope act of ECB President Mario Draghi. There used to be a time when the prices of stocks and bonds reflected company and business cycle fundamentals. Today, that seems like an idyllic movie set from a bygone era. Mr. Draghi’s task on Thursday is even trickier than the balancing act that faced the Fed when it wound down its own QE program almost four years ago. The ECB has had to … [Read more...]
This is a Fixed Income Strategy that Should Be Avoided
The reach for yield in fixed-income markets continues full-steam ahead. The latest junk issuer to tap into investors desire for income at any and all costs comes courtesy of Tajikistan. Tajikistan just closed on its first ever international bond issue last month. Never heard of Tajikistan? Tajikistan is a tiny landlocked former Soviet republic with a population of about 9 million people. The Tajikistan bonds are rated B- by S&P and come with a coupon of 7.125%. Junk bond issuance in the developing world is already up 60% over last year’s total and we still have three months to go. This … [Read more...]
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