Young Research & Publishing Inc.

Investment Research Since 1978

Is This the Start of a Major Downturn or Just a Healthy Correction?

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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

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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?

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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

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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

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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...]

How to Earn 7% Yields in the Bond Market

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The Economist reports on more yield reaching in the bond market. We’ve written about the 100-year Argentina bond that was issued without a hitch, but Argentina isn’t the only country where we are seeing historic yield reaching behavior. With rates on high yield bonds offering little more than 5%, some investors apparently see no harm in loading up on Iraqi bonds. Yup, Iraq recently issued a $1 billion bond with an expected yield of 7%, but demand that was six times the available supply ultimately drove the yield on those Iraqi bonds down to 6.75%. Today they yield about 6.3%. Such eagerness … [Read more...]

Portfolio Strategy: This is the Fair Value Yield on 10 Year Treasuries

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Income investors can’t seem to catch a break. Even though the Federal Reserve is finally normalizing short-term interest rates, long-term interest rates remain depressed. The 2.2% yield on 10 year Treasuries isn’t much higher than it was during the last financial crisis. Based on the rate of economic growth, inflation, and the current Federal Funds rate, long-term interest rates should be much higher. How much higher? The chart below compares the actual 10-year Treasury rate (blue line) to the rate predicted (black line) by a simple model of economic growth, inflation, and short-term … [Read more...]

Bond Market Warning Signs

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Will last week's $1.8 billion financing of Tesla, a company with no profits, mark the pinnacle of this debt bubble? It's possible. But whether or not this is the peak, it's becoming harder to argue with the evidence of an unstable market in American securities. Bloomberg reports: “That Tesla could come to the market at a little over 5 percent yield for a low-single B rated company, is something of a sign of exuberance,” said Gene Tannuzzo, senior portfolio manager at Columbia Threadneedle, with about $467 billion under management. “Elon Musk is a pretty cool guy but they haven’t figured … [Read more...]

Greenspan: Bond Bubble on the Brink of Bursting

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Former Federal Reserve chairman Alan Greenspan issued a warning to investors on CNBC this morning, that the bond market, and along with it the stock market, are in danger of collapse. Greenspan blamed the abnormally low interests rates being set by the Federal Reserve for the danger in markets today. Greenspan predicts the change in the market will be "rather rapid." … [Read more...]

This Major American City is Looking at Bankruptcy

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I have recently written to you about the possible bankruptcy of the state of Illinois, potentially the first state in the country ever to go under financially. But travel a thousand miles east from Springfield, and you'll land in Hartford, CT a major American city that just had its debt rating cut to junk status.  Zerohedge writes: ...on Tuesday afternoon, S&P pulled off the band-aid, and downgraded the city's bond rating by two notches to BB from BBB-, also known as junk, citing "growing liquidity pressures" and "weaker market access prospects", while keeping the city's General … [Read more...]