Not exact matches
«If we assume extremely pessimistic
nominal earnings growth of 3 % over the coming decade and a compression
in the price - earnings ratio to 10, equities would still deliver returns above current bond
yields.
In bonds, Friday's tepid unemployment report was accompanied by a substantial decline in both real and nominal yields - enough to move the Market Climate in bonds to a condition of both unfavorable valuations and unfavorable market actio
In bonds, Friday's tepid unemployment report was accompanied by a substantial decline
in both real and nominal yields - enough to move the Market Climate in bonds to a condition of both unfavorable valuations and unfavorable market actio
in both real and
nominal yields - enough to move the Market Climate
in bonds to a condition of both unfavorable valuations and unfavorable market actio
in bonds to a condition of both unfavorable valuations and unfavorable market action.
Even as the ten - year
yield soared to 15 %
in 1981, the
nominal drawdown was just 16 %.
Positions that have recently come undone include betting on steepening
yield curves and inflation expectations (inflation - linked over
nominal bonds)-- and
in equity markets, picking value over growth shares.
We see higher inflation expectations, rather than rising real
yields, driving rises
in nominal bond
yields.
Higher rates effected performance, but
nominal returns were still positive because eventually investors were able to make up for the price losses through the increases
in yield.
In contrast, medium - term inflation expectations implied by financial market prices, which are calculated as the difference between
nominal and indexed bond
yields, have been broadly stable at around 2.6 per cent over the past nine months.
For roughly three decades, U.S. non-financial corporate debt as a percentage of U.S.
nominal GDP and the high
yield default rate moved
in tandem.
Medium - term inflation expectations of financial market participants, as implied by the difference between
nominal and indexed bond
yields, have risen to around 3 per cent
in October, from less than 2 per cent at the beginning of the year.
In part, this increase might be a mechanical response of nominal yields to developments in world bond markets, rather than signalling a lasting change in the financial market's view of the inflation outlook in Australi
In part, this increase might be a mechanical response of
nominal yields to developments
in world bond markets, rather than signalling a lasting change in the financial market's view of the inflation outlook in Australi
in world bond markets, rather than signalling a lasting change
in the financial market's view of the inflation outlook in Australi
in the financial market's view of the inflation outlook
in Australi
in Australia.
The early weeks of 2015 are the first time
in history that both 10 - year Treasury
yields and our estimates of prospective 10 - year
nominal total returns for the S&P 500 have both declined below 2 % annually.
Yet low
nominal gross domestic product growth and aging populations argue for lower bond
yields than
in the past — and sustained demand for high quality bonds.
The chart below shows the difference
in the
nominal and real
yield curves for government bonds
in a number of advanced economies.
Breakeven rates — the difference
in yields between
nominal and inflation - linked bonds of the same maturity — reflect market expectations for inflation.
Our model indicates that going forward, long - term
yields will likely be subject to three upward pressures: (1) Our forecasted increase
in inflation will boost
nominal GDP growth; (2) As forward guidance is replaced by a data - dependent monetary tightening, volatility
in short rates will increase; and (3) As the impact of QE on the Treasury market fades, long - term
yields will trend back to their historical link with
nominal GDP growth.
Yields on inflation - indexed bonds have moved in a similar way to nominal yields since the last Stat
Yields on inflation - indexed bonds have moved
in a similar way to
nominal yields since the last Stat
yields since the last Statement.
When savings are high, the term premium is more likely to be low,
in the process keeping
nominal yields down.
In contrast to
yields on
nominal bonds,
yields on inflation - linked bonds have for the past six months remained close to their lowest recorded levels.
The level of
yields — around 4 1/4 per cent at present — looks low not only on historical comparisons but also relative to normal benchmarks such as the growth rate of
nominal GDP, which
in the US is currently around 6 per cent (Graph 16).
(It's a bit similar to the «are stocks expensive» issue: they look expensive
in nominal earnings
yield terms, but not when seen as a spread over risk free.)
Eleven sheets wired
in series
yield a battery pack providing a
nominal 366 volts and 56 kilowatt - hours of electrical power.
Positions that have recently come undone include betting on steepening
yield curves and inflation expectations (inflation - linked over
nominal bonds)-- and
in equity markets, picking value over growth shares.
Despite the sharp rise
in inflation expectations, 10 - year breakevens (the difference between the
yield on a
nominal fixed - rate bond and the real
yield on TIPS) remain depressed relative to their long - term history.
While the initial
yield was high, your overall return has been eroded by a 25 % decline
in the
nominal value of your investment.
At a 10 - year Treasury
yield of 1.7 %, interest on reserves of 0.25 %, and a monetary base now at about 18 cents per dollar of
nominal GDP (see Run, Don't Walk), further purchases of long - term Treasury securities by the Fed would produce net losses for the Fed
in any scenario where
yields rise more than about 20 basis points a year, or the Fed ever has to unwind any portion of its already massive positions.
As I noted this past January
in Sixteen Cents: Pushing the Unstable Limits of Monetary Policy, a collapse
in short - term
yields to nearly zero is a predictable outcome of QE2, based on the very robust historical relationship between short - term interest rates and the amount of cash and bank reserves (monetary base) that people are willing to hold per dollar of
nominal GDP:
They are attempting to achieve high smooth
yields well
in excess of the
nominal risk - free rate on a constant basis.
However,
in terms of interest, the
nominal rate also contrasts with the annual percentage rate (APR) and the annual percentage
yield (APY).
In our latest white paper, Senior Portfolio Manager Duane McAllister explains how the recent boost in short - term yields not only allows investors to once again earn a reasonable nominal return on their money without needing to take significant duration risk, it also provides an opportunity to earn a positive real return, since core inflation measures remain below the Fed's 2.0 % targe
In our latest white paper, Senior Portfolio Manager Duane McAllister explains how the recent boost
in short - term yields not only allows investors to once again earn a reasonable nominal return on their money without needing to take significant duration risk, it also provides an opportunity to earn a positive real return, since core inflation measures remain below the Fed's 2.0 % targe
in short - term
yields not only allows investors to once again earn a reasonable
nominal return on their money without needing to take significant duration risk, it also provides an opportunity to earn a positive real return, since core inflation measures remain below the Fed's 2.0 % target.
Savers who park their emergency fund money
in a bank or credit union, or purchase money market funds and Certificates of Deposit (CDs), may well see a
nominal bump
in their
yield.
Think of 1979 - 82: by the time bond
yields were nearing their peak levels, bond managers were making money
in nominal terms with rates rising because the income from the coupons was so high, and it set up the tremendous rally
in bonds that would last for ~ 30 years or so.
For example, if we assume extremely pessimistic
nominal earnings growth of 3 % over the coming decade and a compression
in the price - earnings ratio to 10, equities would still deliver returns above current bond
yields.
Today, they hover well under 2 %, while
nominal bond
yields are
in the 5 % range.
In this situation, the real
yield would rise on both
nominal Canadas and RRBs.
The
yield of a global portfolio is about as low as its ever been from a cyclically adjusted P / E, credit spread, and
nominal interest rate standpoint, while the global economy is more likely to be
in the later (than early) stages of the business cycle.
One last thing... the S&P 500 had a great 10 % long - term return due to (approximate and
nominal) a 6 % increase
in earnings and a 4 %
yield.
Exhibit 3 shows the
yield for 5 - and 10 - year
nominal bonds went down 30 bps and 54 bps, respectively, but we can see positive returns
in the local indices.
As Jim Bianco has done, we can compare the year - over-year change
in nominal GDP with the 5 - year Treasury
yield, which have historically tended to move together over time.
The chart below shows the decline
in the US Treasury
yield over the last 21 years split between the real yield, as estimated by the Bloomberg Barclays US Inflation Linked Bonds Average Annual Yield, and the level of inflation expectations implied by the 10 - year nominal Treasury Bond y
yield over the last 21 years split between the real
yield, as estimated by the Bloomberg Barclays US Inflation Linked Bonds Average Annual Yield, and the level of inflation expectations implied by the 10 - year nominal Treasury Bond y
yield, as estimated by the Bloomberg Barclays US Inflation Linked Bonds Average Annual
Yield, and the level of inflation expectations implied by the 10 - year nominal Treasury Bond y
Yield, and the level of inflation expectations implied by the 10 - year
nominal Treasury Bond
yieldyield.
Cash rates are zero
in nominal terms, and negative
in real terms, bond
yields are not going up anytime soon.
For roughly three decades, U.S. non-financial corporate debt as a percentage of U.S.
nominal GDP and the high
yield default rate moved
in tandem.
Here's my bias: at the first investment shop I worked
in, the high
yield manager told me that there is a
nominal yield for high
yield bonds which reflects the risk.
Just whack it with open market purchases or a tender, finance it with low
yield guaranteed debt, and enjoy the reduction
in nominal debt outstanding.
We use
nominal returns because the bond
yield is stated
in nominal terms and includes an expected market inflation rate.
Based on the spread between
nominal and inflation protected
yields, the expected 10 - year inflation rate is 2.75 percentage points, up more than 100 basis points
in the past year.
As a result, while markets would appear to be quite expensive today based on
nominal earnings
yield, which is
in the top quintile of all values over the past 140 years, the real earnings
yield is less extreme because yoy inflation is so low.
Thus, while TIPS
yields are at historically low levels, TIPS continue to look like a clear choice over
nominal Treasuries
in relative terms, because investors aren't paying a premium for unexpected inflation.
Note that because we are using real earnings
yield rather than
nominal earnings
yield, markets can get cheap or expensive
in three ways:
@Boa05att: Yes, this is what has not been done
in Fukushima, where the risk of a big earthquake had been calculated as once
in 1000 years or so, which seem small at first glance, but
yielding 1/30 within
nominal reactor lifetime, which is very big, taking into account the potential (and then real) damage.
An increase
in marginal
yield corresponds to an increase
in marginal risk, but that risk is not born evenly by investors: the ones with bad setup end up with a vacant property, while the ones with good setup can access that higher
nominal yield.