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...]
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.
Best of Young Research 2019: Income Investing
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...]
Why Bonds Always Matter to You
I want you to look at my chart above, Bonds vs. Stocks. What I’ve done for you is offer a look at the Fourth Quarter of last year. Of note, the Fed was coming off a series of rate increases and had begun lowering rates in August. Additionally, the Republicans lost the House to Democrats in November. Talk about uncertainty in the markets. The black bars show how bonds rallied. The blue bars show how stocks cratered. This micro example shows you the power of counterbalancing. You have seen time after time at this website how I want you to focus on your risk first and foremost. And this is … [Read more...]
Bonds vs. Stocks: First Things First
Bonds play a role in your portfolio even when interest rates are low. You absolutely, without a doubt, must consider your risk first and foremost before investing in stocks. That’s why I want you to put your bonds before your stocks when considering today’s market environment. Originally posted on Your Survival Guy. … [Read more...]
Are Investors Ready to Demand Higher Yields?
Worries about the future returns in bonds have heightened the possibility investors will begin demanding higher yields. Daniel Kruger reports at The Wall Street Journal: Recession worries and interest-rate cuts from the Fed have boosted bonds of all kinds this year. But worries that the gains can’t go on forever have led some investors to unusual corners of the market. Mr. Doty said he has added taxable bonds sold by states and local governments, which offer more attractive yields and stronger credit quality than most company debt or the tax-exempt bonds typically sold by … [Read more...]
The Two Reasons Muni Bonds Don’t Belong in Your Portfolio
Two reasons municipal bonds don’t belong in your portfolio are underfunded pensions and Wall Street. In the case of underfunded pensions look at what happened to GM. It was the bondholders who got skewered. When push comes to shove who do you think will get paid first, you or the government employees (pensions)? And then there’s Wall Street. Tom McGinty and Heather Gillers explain in The Wall Street Journal, writing: When the West Contra Costa Unified School District in California needed money to repair and upgrade deteriorating classrooms, it hired Piper Jaffray Cos. to sell $191 … [Read more...]
Munis Stuck between a Rock and a Hard Place?
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...]
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...]
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