With the craze over index-based investing continuing to gain momentum, there is one asset class where active management still reigns supreme. That is in the fixed-income space. Barron’s reports that according to a recent PIMCO study (yes there is a conflict there) the majority of actively managed bond funds have beaten their passive peers over the past one, three, five, seven, and ten years after fees. A full 63% have outperformed over the past five years. There are many reasons indexing shouldn’t be viewed as your first choice for bond investing, but one of the reasons cited by PIMCO, for … [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.
Bond Bear Market Watch: Are we there yet?
We continue to watch the key 2.60% yield level on 10-year Treasuries. A meaningful break above the 2.60% yield level will likely signal the end of the over three-decade secular bull market in bonds and the beginning of a new secular bear market in bonds. The 10 year yield has retreated from its highs of late last year, but still remains within striking distance of the key 2.60% level. Savvy investors should continue to watch the direction of longer-term interest rates as they are likely to set the tone for a broader range of asset prices in 2017. … [Read more...]
This is the Milestone You Should Watch, not Dow 20,000
Many investors are focused on the Dow hitting the 20,000 milestone, but compared to another key technical level, Dow 20,000 is a B-lister. Here the Financial Times points out that the key technical indicator to watch is the 2.60% yield level on the 10-year treasury note. According to former “Bond King” Bill Gross, if the 10-year yield crosses the 2.60% threshold, it will signal the start of a secular bear market in bonds. The FT has more of the details. The Janus portfolio manager, dubbed the “Bond King”, warned that if the 10-year yield crosses that threshold, it will signal the start of … [Read more...]
How to Survive Soaring Interest Rates
For income investors, the threat of soaring interest rates is a nagging risk. If your portfolio is loaded up with the wrong types of bonds, rising rates can devastate your portfolio returns. See here for example. Rising interest rates don't impact all bonds in the same way though. Here at Barron’s, PIMCO (via a paid advertisement) makes the case that a properly positioned bond investor need not fear the threat of increasing interest rates. As one of the world’s largest bond fund managers, PIMCO of course has an ax to grind, but the insights they offer remain relevant. Bond declines … [Read more...]
The Triple Threat to your Muni Bonds
Here the Financial Times outlines the triple threat that a Trump administration poses to municipal bonds. Muni bonds aren't an area of focus for us at Young Research. In addition to the potential risks to munis outlined below, we have tended to eschew the asset class(except during periods of extreme opportunity) because much of the market is long-maturity, liquidity is spotty on many issues, timely financial disclosure is lacking, and as pointed out below, there is the ever lurking tail risk that a major tax reform bill could eliminate the tax-advantaged nature of muni bonds. The US … [Read more...]
2% Where Have You Been All These Years?
Yesterday was the first time since the Spring of 2011, that the yield on 5-year Treasury notes crossed 2%. What's so special about a 2% yield? Walter Bagehot of Lombard Street fame, opined many decades ago that "John Bull can stand many things, but he cannot stand two percent." That may still be true today, but after so many years of being deprived of safe interest income, a 2% yield doesn't look so bad. If you take the liberty of assuming that Yellen & Co., won't let the inflation genie out of the bottle, it is once again possible to invest in medium-maturity full-faith-and-credit … [Read more...]
Portfolio Strategy: This is What Happens When You Try to Pick up Nickels in Front of a Steam Roller
After enduring years of the Federal Reserve’s zero percent interest rates and trillions worth of long-term bond purchases meant to drive widows and orphans into riskier assets, many investors capitulated, reaching for yield in long bonds and other risky assets. You can see the tracks of this behavior in the stock market as well as the bond market. In the bond market, the reach for yield may have climaxed over the summer. The 30-year bond yield hit a low of 2.11% on July 8th. That is lower than the lowest-low during the height of the financial crisis. What were these investors thinking … [Read more...]
Destruction in the Bond Market Looks Like This
We have warned against the extreme volatility in long bonds from just a slight up-tick in rates. Read here, here and here. In 2012 I explained the concept of duration writing: "wait until interest rates go up. The word to remember is duration. A bond’s duration is an approximation of the percentage decline in its value for every 1% increase in interest rates. The smaller the duration, the less sensitive a bond is, and therefore the less risky in terms of interest rate fluctuations. If rates increase by 1%, the price of a bond with a duration of 10 will fall by about 10%." Here from The Wall … [Read more...]
Does Trump offer hope for Income Investors?
Eight years of near zero interest rates in the bond market have inflicted untold pain on America’s retired investors and savers. Those who saved diligently year in and year out for a comfortable retirement have been punished by an activist Fed. A Fed that has tried to use monetary policy, a tool designed to smooth out cyclical speed bumps in the economy, to repair structural economic problems best addressed by fiscal authorities. Could a Trump Presidency spell the end of America’s failed experiment with Monetary Keynesianism? As the WSJ points out here, a Trump presidency may offer hope. … [Read more...]
Tidal Wave of Junk Bond ETF Outflows
Inflation and uncertainty over future interest rate moves by the world's central banks are causing junk bond investors to flee for the exits. Over the last week a wave of money has exited the junk bond market. The chart above displays the outflows from junk bond ETFs HGY and JNK. After I wrote to you yesterday, investors pulled money out of of junk bond ETFs yet again. The Wall Street Journal's Chris Dieterich writes: The bond market’s October retreat fueled record withdrawals from some popular exchange-traded funds, the latest sign of investor anxiety over inflation. Investors pulled $998 … [Read more...]
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