There may be no good alternative for muni bonds today. According to Mark Schmidt and Michael Zezas of Morgan Stanley, whether the economy slows or accelerates, the muni bond market could suffer. Bloomberg's Amanda Albright reports: A slowing U.S. economy could be bad for the asset class -- and so could a rebounding one. That’s made the bank less optimistic about state and local government debt, which has returned 7.6% in 2019, marking the best year since 2014, according to the Bloomberg Barclays index. The bank’s municipal-securities strategists, Michael Zezas and Mark Schmidt, said in a note … [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.
Didn’t This Happen Before the Last Crisis?
Companies from a wide array of industries are securitizing their assets. Essentially the companies are mortgaging themselves to achieve investment-grade debt ratings. This is reminiscent of similar behavior just before the Great Recession. Claire Boston reports for Bloomberg: As borrowing costs plunge for the highest-quality companies, there’s a growing incentive for riskier businesses like fast-food chains to mortgage virtually all their assets. Franchised companies like burger restaurant Jack in the Box Inc. and massage provider Massage Envy are increasingly selling unusual bonds backed … [Read more...]
Banks are Fleeing Munis. What are They Leaving Behind?
With fewer tax advantages offered by municipal bonds after the 2017 Tax reform, banks are leaving the market for the fixed income securities. What is that leaving in their wake? The market for munis is likely to become more volatile as fewer big players are available to create liquidity. Michelle Kaske reports at Bloomberg: Big banks cut their holdings of state and local-government bonds during the last three months of 2018 as the corporate tax cut reduced the benefit of owning the securities, signaling the industry’s biggest annual pullback from the market on record and its first in more … [Read more...]
Post-Financial Crisis Regulation Could Worsen the Next Crisis
At the Financial Times, Amin Rajan explains that a lack of liquidity, which was strangled by post-2008 Financial Crisis regulation, could deepen any future financial crisis. Put simply, traditional market makers for fixed-income products cannot now warehouse risk because of the effect of the regulation to enhance global financial resilience introduced after the 2008 crisis. This is best shown by US investment grade credit. It grew by 43 per cent between 2007 and 2018, while dealer inventories were just 6 per cent of what they were in 2007, according to JPMorgan Asset Management. The new … [Read more...]
Are Munis a Shelter from the Storm? Not so Fast
The Wall Street Journal reports that Americans in high tax states like New York and California are jumping into municipal bonds to shelter their investments from taxation. Maybe these are residents who can flee from the high tax states they call home, as so many others have. Now that the federal government has stopped subsidizing these states' high taxation, residents are feeling the full burden of their states' big-spending ways. The Journal reports: Investors in high-tax states like New York and California are piling into municipal bonds this year, fueled in part by the 2017 tax overhaul … [Read more...]
This Has Never Happened to German Bonds Before Now
For the first time ever, Germany's yield curve is completely negative. Bunds from 2 year to 30 year are all yielding negative rates. Bloomberg's John Ainger reports: German 30-year bonds rallied to send yields across the whole of its debt market below 0% for the first time after President Donald Trump ratcheted up the U.S. trade war with China. The euro area’s biggest economy joined Denmark and Switzerland in the region in offering negative returns to investors should the notes be held to maturity, taking the total stock of investment-grade debt yielding less than 0% to $14 trillion … [Read more...]
Would You Buy this Bond?
Imagine a bond from a creditworthy country that pays you each year for 100 years. The only catch is, it only pays 1.2%. Would you buy it? In Bloomberg, Marcus Ashworth calls the idea of the 100 year bond at 1.2% "madness." He writes: If you needed any more proof that the world of fixed income has gone mad in the rabid hunt for yield, look no further than the Republic of Austria. If you liked its 100-year debt issued two years ago with a 2.1% return, how about settling for the same maturity for 1.2% now? Yes, you read that right: A 100-year bond yielding about 1.2%. Austria is in the … [Read more...]
Would You Hire an Advisor to Buy Your Next Car?
Raise your hand if you enjoy the car buying experience? Anybody? The consumer car buying experience is widely regarded as one of the worst there is. The Internet has made things a little bit easier, as you can now do some basic research so you don’t have to walk blindly into the dealership, but the dealer still has the upper hand. If you try to negotiate a price on your trade-in for example, the dealer will budge less on the new car you are trying to buy. If you are leasing, the dealer may give you a good price on the new car and your trade, but he’ll jack up the lease … [Read more...]
Why Not Invest at Negative Interest Rates?
Would you pay someone else to take your money? If you answered no, good for you. If you answered yes, many investors in European government and even corporate debt feel the same. The Wall Street Journal's Daniel Kruger reports that investors have been paying European governments and even corporations like LVMH to hold their money by purchasing bonds at negative yields. Kruger writes: A growing number of investors are paying governments in Europe for the privilege of holding their bonds. The amount of negative-yielding government bonds outstanding through 2049 has risen 20% this year to … [Read more...]
Here’s How to Build Yourself a Barricade Against Volatility
Back in October of 2006, as the crest of the Housing Bubble was forming, I remained doggedly attached to my principled investment strategy of diversification and compound interest. That month I encouraged readers to build a “volatility barricade.” Here’s what I wrote (with updated numbers to reflect the intervening years): Your Volatility Barricade Your portfolio’s fixed-income position does two things for you. (1) It either throws off cash for you to spend at Ace or True Value (not Wal-Mart or Home Depot) in retirement or, instead, allows your interest to compound in an IRA. (2) Your … [Read more...]
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