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...]
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.
These Two ETFs Were Hit Hard by Outflows on Friday
High yield ETFs focused on long-duration bonds are seeing a massive exodus by investors worried about rising rates. On Friday, BlackRock's iShares iBoxx $ High Yield Corporate Bond ETF (HYG) suffered a record outflow of $1 billion. That's in contrast with shorter duration funds that have even seen some inflows as investors readjust. On the same day, State Street's SPDR® Bloomberg Barclays High Yield Bond ETF (JNK) watched $182 million walk out the door. Financial Times reporters Joe Rennison and Eric Platt write of the phenomenon: “The recent pullback in the larger high-yield ETFs such as HYG … [Read more...]
Are you part of the most crowded trade in income investing?
Bloomberg reports that the most crowded trade in income investing is at risk of overheating. Long-bonds have been big winners YTD, but according to Bloomberg that trend may be at risk of reversing. Even if you aren't interested in taking your investment advice from a news outlet, the risk in long-bonds far outweighs the opportunity. The hottest craze in fixed income is at risk of overheating. A headlong rush into higher-yielding, long-term bonds in recent years has created one of the most crowded trades in financial markets. Investors seeking relief from central banks’ zero-interest-rate … [Read more...]
Income Investing: These Bonds Can Help Reduce Interest Rate Risk
Many individual investors shy away from bonds that trade at a premium to par value because they don’t see the point in paying, say $11,000 for a bond that returns $10,000 at maturity. Here Fidelity offers a primer on premium bonds, why investors need not fear premium bonds, and how premium bonds can be used to reduce interest rate risk in a fixed-income portfolio. You can read the full post here. Some investors today would rather hold cash than buy bonds because they’re concerned that interest rates may rise and depress bond values. Premium bonds are not immune to rising rates—premium bond … [Read more...]
Pensions: Left on the Hook will be the Taxpayer
Ike Brannon, a visiting fellow at the Cato Institute, explains how the Puerto Rico rescue makes state pensioners the big winner. Right now, states cannot declare bankruptcy, which is one reason why states have traditionally been able to borrow at such low rates of interest. However, financial markets have come to realize, belatedly, that Illinois (along with other states) is making promises to its lenders that it will have trouble keeping. Puerto Rico was not supposed to be eligible for bankruptcy either, but the legislation before Congress will allow the territory to reduce its debt, both … [Read more...]
Why a Million Bucks ain’t what it Used to Be
U.S. savers and retired investors who planned to fund their retirement with their life’s savings have been savaged by the Fed’s ultra-low interest rate policy. Yellen & Co., insist on subsidizing big banks and other borrowers with ultra-low rates in an effort to stimulate growth. That effort has clearly fallen flat by any reasonable measure of success. The Fed’s policies have helped knock the yield on 10-year Treasury securities down to a mere 1.70%. You have to save a lot more or plan to spend a lot less if you are going to fund your retirement with a 1.70% yield. But as bad as a 1.70% … [Read more...]
The Monday Melee: Saudi Treasury Holdings Exposed
Saudi Treasury Holdings Detailed for the First Time in Decades After four decades of secrecy, the Treasury Department has released a report including Saudi Arabia's holdings of treasury securities. Bloomberg reports: The stockpile of the world’s biggest oil exporter stood at $116.8 billion as of March, down almost 6 percent from a record in January, according to data the Treasury disclosed Monday in response to a Freedom-of-Information Act request. The tally ranks Saudi Arabia among the top dozen foreign nations in terms of holdings of U.S. debt, and compares with China’s $1.3 trillion … [Read more...]
This is Why You Buy Bonds
Investing in the bond market has been a tough slog over the last few years. Zero percent policy rates and bond buying by the world’s major central banks has kept yields at some of the lowest levels on record. Investors have long had an aversion to the bond market. Bonds don’t offer the glamour and hope that many crave from their investments. And bonds don’t provide the kind of long-term upside that stocks can. Add today’s ultra-low yields to the investing public’s natural bias against bonds, and the result is a move by some investors to load up on stocks in an effort to boost income. Higher … [Read more...]
You Will Get Crushed in These Bonds
The global bond market is broken. Years of zero interest rates and trillions spent buying everything from government bonds to corporate bonds by the world’s central banks should have made that clear long ago. The world’s monetary authorities have sucked liquidity out of global bond markets. And now we have the scourge of negative interest rates to deal with. Negative rates and a continued ramping in central bank bond buying activity has made the situation even more disturbing. Two of the world’s largest central banks have cut short-term interest rates into negative territory, igniting a … [Read more...]
Is this a Sucker’s Rally?
The chart below compares the spread (yield difference with treasuries) of the Merrill Lynch High-Yield Master Index to the S&P 500. The vertical axis for the Merrill Lynch spread is reversed to show falling spreads as rising (a positive). High-yield spreads and stock prices tend to move in lock-step, but tops and bottoms in spreads tend to lead tops and bottoms in stocks. The recent rally in the S&P 500 has not been confirmed by the performance in high-yield bonds. High yield bonds hit a lower low in September and their rally has now only brought spreads back to the level … [Read more...]
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