The WSJ reports on new work that shows historically investment-grade bonds have beaten stocks in 40% of ten year periods. What’s more, in many 10-year periods the return on bonds is only about a percentage point less than the return on stocks. With Treasury bond yields nearing rock bottom levels, it would seem to be a cinch for stocks to beat Treasuries over the coming decade, but today’s historically lofty stock valuations make the calculus more complicated. And if you are willing to venture beyond the safety of Treasuries, the return opportunities in corporate bonds aren’t as depressed as … [Read more...]

With Congress considering yet another stimulus bill with the price tag measured in trillions, Victor Davis Hanson offers a sobering reminder of what comes next. The deficit is expected to exceed $4 trillion soon and the national debt may climb to $30 trillion or nearly $100,000 for every American. How will the United States sustain this level of debt, let alone repay it? VDH offers five ugly choices. Inflation looks like the most expedient option for the political class. Negative Interest Rates One, Americans would be forced to live with permanent near-zero interest rates, or … [Read more...]

The Federal Reserve has destroyed investors' sense of risk. Bloomberg's Davide Scigliuzzo, Craig Torres, and Lisa Lee explain how no junk debt is too risk for the Fed. They write: Long before the coronavirus pandemic would bring business to a standstill all across America, Surgery Partners Inc., a sprawling network of outpatient clinics, already had its share of financial problems. This was no secret on Wall Street. Surgery Partners’s majority owner, the buyout firm Bain Capital, had loaded so much debt onto the company’s books that when it went to the market last year to refinance … [Read more...]

For much of the last five years, junk bonds have outpaced short-term investment-grade bonds. Ultra-low interest rates, quantitative easing, and a central bank set on rescuing investors during every episode of market turbulence emboldened investors to reach for yield in high-yield bonds. We advised against such a strategy. Risk must always be evaluated before return. Turns out, easy money can’t cure coronavirus. The iShares High-Yield Bond index just gave up more than 5-years worth of return advantage over the Vanguard Short-term Investment Grade fund. It only took a couple of weeks for … [Read more...]

Yesterday you read that the coronavirus was causing panic in markets, sending stock prices plummeting. Below you can see that, while DJIA stock prices fell 3.54% in yesterday's turmoil, bond prices (as measured by the Ryan/NASDAQ Laddered Treasury Index) rose 1.05%, a difference of 4.59% over stocks. If you don't understand the value of bonds, this is it. Bonds are a counterbalancer in your portfolio against the volatility of stocks. Bonds will always matter to you, especially when the going gets tough. If you are just beginning to invest in bonds, consider a laddering strategy. And … [Read more...]

Joe Rennison reports for the Financial Times that "fallen angel" downgrades could test the high yield debt market. He writes: When S&P withdrew General Motors’ top-quality credit rating in May 2005, sending $41.5bn of debt crashing into junk territory and creating the largest ever “fallen angel”, it triggered the biggest sell-off in corporate bond markets since the dotcom bust. Along with the simultaneous downgrade of Ford, which remains the second-largest fallen angel after its $40.8bn of debt was docked, the bedrock of corporate America shook. “It is not just they that have a … [Read more...]

In normal times, junk bond traders will often have ratings downgrades priced in well before the ratings agencies get around to making it official. Today though, traders are making bigger moves than normal in response to the agencies' downgrades of junk bonds. David Caleb Mutua reports for Bloomberg: Usually, when a credit-rating firm downgrades a company, bond prices move much less, because the securities had weakened weeks or months earlier when investors first suspected trouble. In each of 2017 and 2018, bonds from a high-yield company that got cut would have lagged the index by just 5 … [Read more...]

Below are five of Young Research’s most popular income investing posts of 2019. Here's How to Explain Negative Interest Rates to Your Spouse Vanguard GNMA Outlook 2020 Is the World's Largest Money Manager Pushing You into an Annuity? The Dynamic Maximizers® Solution This Money Market Fund is Paying 47 Times More than its Competition … [Read more...]