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...]

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...]

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...]

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...]

Low long-term bond yields in the face of a Fed that is hiking short-term rates has helped sustain one of the greatest yield reaching episodes on record. As the WSJ explains, a reversal in sentiment is all it would take to drive yields back to more normalized levels, likely leading to an unwind in the trade. Not a comfortable foundation to build one's retirement portfolio upon. On a related note, stay tuned for a post explaining why investors assuming today's inflated stock market valuations are justified by low long-term bond yields have it wrong. It has been “TINA” for the last seven years. … [Read more...]

This year my investment readers, focused on their long-term retirement survival, have been tuning in to one post more than any other. "Why Vanguard GNMA Works for You in 2017" has been a hit. Read it below. It’s time to get your lazy money off the couch and back to work. You know the lazy money I’m talking about. The rainy day fund that’s turned into a big-screen TV, the matured CDs that took a cruise to the islands, and the emergency cash that’s betting on Apple. Let’s not forget where your safe money should safely be employed: At Vanguard GNMA. Did you know that over the last … [Read more...]

Asset markets are frothy. That shouldn’t  come as a surprise to investors who spend even a few minutes a day doing some remedial analysis. It may however come as a shock to the growing crowd of investors who continue to blindly throw money at index based ETFs using the same tired return assumptions they used when valuations were much lower. Stocks aren’t the only asset class where things look frothy though. Here the FT highlights investor exuberance in the bond market where investors recently placed almost $10 billion in orders for a $2.75 billion 100-year bond from Argentina—a serial … [Read more...]

Despite higher yields, junk bonds today don't look to be worth the risk. If loss rates are factored in, the rosy picture of higher yields begins to look less appealing. MarketWatch reports: The real junk yield The truth is that it’s much riskier than it seems from doing this simple yield, or yield-spread, analysis. That’s because the annual loss rate for junk bonds over the past 35 years has been around 2.5%. You can arrive at the loss rate by adjusting defaults for recoveries. Default rates for junk average about 4.2% annually, according to research from Standard & Poor’s. And … [Read more...]