World shares and
bonds rallied on Thursday, after the Federal Reserve left U.S. interest rates unchanged and slowed the pace of future hikes, weakening the dollar and lifting commodity prices.
Not exact matches
That data raised a fresh round of questions about how the Federal Reserve will proceed
on further cutting back
on its massive monthly
bond purchases, which have kept long - term rates low and encouraged a strong
rally on equity markets.
LONDON, April 10 - Russia's rouble tumbled
on Tuesday and some Russian
bonds plumbed record lows in the wake of U.S. sanctions, but the broader emerging markets complex
rallied, encouraged by China's promise to reduce import tariffs.
The European Central Bank is all but certain to cut back
on its
bond - buying stimulus
on Thursday, one of the biggest factors supporting the
rally in global stock markets in recent months.
Bond traders also keep an eye
on the VIX, a measure of stock - market volatility, since it has historically been highly correlated to the performance of stocks: rising when stocks sell off and falling when stocks
rally.
Caused by worries of a summer interest rate hike and uptick in the U.S. dollar, gold and silver both stalled in May but have since
rallied on the back of Brexit and with government
bond yields in freefall.
Junk -
bond ETFs
rallied on Wednesday, as markets breathed relief that the «fiscal cliff» is no longer a concern and as a result,
bond yields are under 6 percent for the first time ever, and junk ETF share prices hit levels not seen in years in some cases, according to an article
on ETF Trends.
Treasury
bond prices
rallied and yields
on the 10 - year fell to between 2.8 % and 2.85 % following the release of benign inflation data and weaker - than - expected retail sales figures.
U.S.
bonds have been
rallying for several months, but that came to an abrupt end last week as the yield
on the 10 - year U.S. Treasury
bond rose to 1.95 % while two - year yields surged from 0.49 % to nearly 0.65 %.
As
bond yields surged
on Friday, high - yielding segments of the equity market such as utilities and REITs came under the most pressure, which shows that it won't take much of a rise in yields to derail their
rally.
He would also use any
rallies to lighten up
on stocks that perform like
bonds, such as utilities or telecoms.
Hungary's
bonds and stocks
rallied after the government sold the planned amount of debt at an auction
on optimism Prime Minister Viktor Orban will be able to restart talks
on an international bailout.
Treasury yields fall after tepid eurozone inflation data spark German bund
rally European government
bonds strengthened as inflation weakensTreasury yields retreat
on Thursday by falling rates in European government
bonds after eurozone inflation data came in weaker than expected.
If the Dollar broke lower, its likely too that
bonds and duration would
rally; defensives (staples, utes, reits) and growth (tech / biotech / discret) squeeze against crowded value unwinding (fins, energy, indus); yen and euro would squeeze mightily; gold squeezes while copper pukes in a favorite commodities «pair» unwind; HY could reverse weaker vs IG (currently everybody long CCC vs BB
on the high beta trade)... this would be the theoretical path to our next pain - trade or even VaR shock.
From a «consensual positioning» perspective which touches
on this current «mean - reversion dynamic in the marketplace: say this big
bond rally were to gather steam into a much more punishing squeeze of the «all - time» UST short base (largely due to the previously mentioned lack of «tolerance» for beginning of year performance pain).
Then late in the week, stocks
rallied on some strong earnings reports and economic data, with a better - than - expected initial reading
on first - quarter GDP pushing
bond - yield lower
on Friday and easing some earlier week concerns about inflation.
The narrative of higher rates being a headwind for gold seems to be falling apart, as the 10 year yield in the US seems to be
on an upswing, and gold is
rallying at the same time that
bond values fall.
Equity markets have
rallied further, while credit spreads
on bonds have narrowed.
Low rates are good for
bonds, so they
rallied on this news.
The US Fed indicated further moves would be dependent
on global factors and oil prices — a key detail signifying that future rate hikes seem likely to develop
on a slower scale, causing a European government
bond market
rally on Thursday, sending yields lower in the region.
Emerging market equity funds stood out
on the equity side with a category return of 3.64 % while the long government
bond category
rallied and closed the month up 5.83 %.
The equity side of my portfolio had definitely gotten heavy with this past year's
rally — for me it's looking like a good time to start concentrating
on the
bond - side of my portfolio.
This
bond breakout underway is issuing a stark warning: Get out of passive stock investments and real estate
on any near - term
rallies... If yields spike, as I expect we'll see, it'll send both asset classes into free fall.
Now the only «
rally talk» is centering
on how high longer - term
bond yields might climb.
(ETF.com: Sep 29, 2016) ETF.com said that while it's impossible to know whether the next Federal Reserve rate hike will cause «a
rally in interest rates (and sell - off in
bonds)... there are many tools available in the ETF world to minimize the impact of higher rates, or even capitalize
on them.»
My Grandpa
on my father's side thought he was clever investing in short - term CDs, but he never changed
on that, and forever missed the
rally in stocks and long
bonds that kicked off in 1982.
Which is a terrifying reminder of the underlying economic reality since then — in the absence of trillions of monetary (& fiscal) stimulus, and the
bond & equity market
rallies they've induced, quite obviously something more like (or even worse than) Japan's lost decade (or two) would otherwise have been
on the cards (& might still be)...
The Fed will make its next announcement
on interest rates and provide some clarity
on the end of quantitative easing, the stimulus program of massive
bond buying that kept long - term rates low and encouraged a
rally on stock markets.
And here's the rub: high yield
bonds do not react to yields
on Treasuries, except negatively, because when Treasuries
rally hard, times are not good, and high yield
bonds do poorly, with yields rising.
Of course, yields
on 10 - year Treasuries (USGG10YR) have since fallen to 2.6 percent from 3 percent at the end of December and company
bonds have resumed their
rally.
6) Junk
bonds have
rallied to a high degree; at this point I say, underweight them — the default losses are coming, and the yields
on the indexes don't reflect that.