The simple version is
seen with bond prices and yields.
Not exact matches
Some in the market have attributed the sharp market swings
seen during the downturns in October and December as indicating structural problems
with liquidity in the market — and some fingers have been pointed at the proliferation of
bond funds.
Imagine creating ocean - deep
bonds through the power of procrastination
with a spontaneous field trip
see Ready Player One More Month «Till Q4 or Pacific Rim IV: Evergreen.
But some observers expect Russia's strongest efforts may be reserved for Serbia, which has close cultural and religious
bonds with Moscow — and whose membership in NATO or the European Union would be
seen by the Kremlin as a severe blow.
It already has a joint venture
with Algomi, which will
see Euronext leverage Algomi's
bond trading technology to push into North America and Asia.
Drummond suggests that no matter how the Americans deal
with the debt, it could throw Canada into a double - dip recession: «It could be a lose - lose, because if they deal
with it in a draconian fashion, then they'll kill off the recovery, but if they don't deal
with it at all, they're going to
see lower U.S. growth, drive down the U.S. dollar, raise the
bond premiums — and that would be a disaster for Canada.»
At some point, investors who are conflating high - yielding consumer staples stocks
with bonds or who are taking interest rate risk in long - dated Treasurys will
see drawdowns as well.
With most of these debts being held by Chinese entities, it's unlikely we'll
see a banking crisis in the same way we could have
seen if Greece or Spain went belly up, said Lau — many foreign banks hold European
bonds — but we've
seen markets panic on far less worrisome Chinese news in the past.
With interest rates so low, stocks are better than
bonds, but the Canadian market, he says, should
see mid-single-digit returns.
However, in my three decades of experience coupled
with reading about markets before my time, the only strategy that I
see standing the test of time is to buy solid blue chip dividend - paying stocks from diverse industries, hold them for the long term, and diversify them properly
with a judicious allocation to
bonds and cash.
I
see no reason to own
bonds during this historic, endless creep higher in stocks
with low volatility; 2.8 percent is my medium - to long - term objective.
I'm happy to
see leaders like Mark Zuckerberg publicly claiming that it's important for fathers to stay home to
bond with their babies and partners, and even more appreciative that he set an example by doing it himself.
Predictably, gold and
bond prices are
seeing advances as people try to flee to relative safety, but that could just mean equities are becoming a better value bet for those
with greater intestinal fortitude.
This year's budget provides a sensitivity analysis for yields on 10 - year
bonds; should interest rates fall in line
with the BMO projections, the Ontario government will
see estimated gains of $ 400 million next year alone.
The fundamental contradiction is that the law
sees already - reduced claims, the Exchange
Bonds, as on equal footing
with never - reduced claims, the «Holdout
Bonds.»
These decades happened to coincide
with The Great Depression and The Great Recession so you can
see that in periods of very poor economic activity,
bonds can act as stabilizer for your portfolio.
It also appears that the ECB will concentrate on reducing its purchases of government (rather than corporate)
bonds, but here issuance is increasing,
with the net amount of eurozone government debt set to expand in 2018, in contrast to the contraction
seen over the previous 18 months.
Looking ahead, we may
see rising yields along
with a continued focus from the government on tax reform, and such a move could hurt the relative attractiveness of muni
bonds.
Barclays» Wall Street rivals
saw bond trading revenues rise by an average of 21 percent in the first quarter,
with investors adjusting their portfolios in response to rising interest rates, and elections in Europe.
A good example of non-investment grade
bond can be
seen with the S&P's stance on Southwestern Energy Company, which was given a rating of «BB +»
bond rating and negative outlook.
OYAIB is an OK rule, but it's less useful today
with the significant shift we're
seeing in the
bond market.
The facility combines European chic
with the sort of security one might
see in a James
Bond movie.
There were 23 times when stocks and
bonds fell not necessarily in consecutive months, but in multiple months over a period of time, as
seen in the table below (the yellow overlaps
with consecutive periods above; For instance, stocks and
bonds fell 3 consecutive months in 1966, but also fell in 4 out of 8 months).
Bonds will be much more volatile from here so if you don't want to take that risk I
see no problem
with using cash or cash equivalents.
Last year's poor showing by Canadian equities, combined
with the Euro - zone crisis
saw panicked investors flock to the safety of quality
bonds.
A
bond fund
with a longer average maturity will
see its net asset value (NAV) react more dramatically to changes in interest rates as the prices of the underlying
bonds in the portfolio increase or decline.
So Europeans and Asians
see U.S. companies pumping more and more dollars into their economies, not only to buy their exports in excess of providing them
with goods and services in return, and not only to buy their companies and commanding heights of privatized public enterprises without giving them reciprocal rights to buy important U.S. companies (remember the U.S. turn - down of Chinas attempt to buy into the U.S. oil distribution business), and not only to buy foreign stocks,
bonds and real estate.
Mr. Draghi said Thursday that the
bond buying would continue through September 2016 or «until we
see a sustained adjustment in the path of inflation which is consistent
with our aim of achieving inflation rates below, but close to, 2 percent over the medium term.»
How about us retirees
with conservative portfolios, e.g., 60 %
bonds, 30 % stocks, 10 % cash, what kind of expected returns do you
see during rising interest rates?
Bond ETFs
saw their highest inflows in three years in April Rise in yields attracted buyersInvestors snapped up fixed - income exchange - traded funds in April,
with the category
seeing its biggest month of inflows in more than three years.
Here you can
see that rate increase along
with the performance of these
bonds over that period:
3 The iBoxx US dollar corporate
bond index, for example, comprises more than 4,200
bonds from 1,200 issuers (associated
with 900 companies), all
with varying credit ratings, coupons and other structural features;
see Tierney and Thakkar (2015).
If you have
bonds mixed in
with your stocks you'll
see a different average rate of return.
When applied to PG
with D = $ 2.66, G = 7 % (
see Pollie - Code DGR) and k = 10 % (corporate
bond rate 2 % + inflation rate 2 % + equity risk premium 6 % (very solid company), the intrinsic value will be around $ 88.
The cost of financing those debts is rising fast,
with the recent sell - off in Portuguese sovereign
bonds pushing yields to levels not
seen since October 2014.
Since rising interest rates means the
bond's fixed rate is not competitive against newly issued
bonds at higher market rates, then it stands to reason that longer - term
bonds (those
with longer to pay at the lower rate) are going to
see their prices fall further than short - term
bonds.
Hawkish comments from Fed's Evans and Williams had the US 10YY higher early, but
with the German 10YY retreating from 3week highs, we are
seeing most Sov
Bonds bid (Yields lower).
Consequently they stuffed their balance sheets to the gills
with supposedly risk - free Greek government
bonds, only to eventually
see them get «haircut» twice in a row.
You won't
see a rise in the value of your holdings
with cash during a recession and if you're keeping it in fixed term accounts then it will be adversely affected by rate rises, same as
bonds.
The fall in
bond yields over the past year, combined
with an unchanged target cash rate, has
seen a flattening of the yield curve.
And so we
see this sort of pyramid where when you're going to play around
with currencies you're dealing
with several trillion dollars moving around every day and then you move up to the
bonds and it's smaller and the equities are considerably smaller.
The spread between 10 - year
bond yields and the cash rate is currently around 45 basis points, compared
with more than 100 basis points on average over the past decade (
see the chapter on «Assessment of Financial Conditions»).
Twenty percent of all days in 2018 have
seen stocks (S&P 500) fall at least 0.5 %
with bonds (U.S. Barclays Agg) closing negative on the same day.
Major equity markets have risen further, and appetite for risk has increased,
with spreads on corporate and emerging market
bonds falling to levels not
seen for several years.
The first one basically being that you know, as we have
seen over the past two years, even
with the emergency monetary stimulus that they're able to grow their balance sheet, which creates excess reserves into the system and in a variety ways and that means, they are purchasing
bonds, purchasing mortgages, purchasing treasuries, which increases the amount of monetary supply — the money available to help all set the conditions that they are trying to counterbalance.
What also is not too surprising is that
with the initial volatility we've
seen in
bond prices since May, retail investors have hit the sell button
with little hesitation.
If we consolidate the stock and
bond holdings, we are left
with an 8 ETF portfolio that still closely maintains the stated portfolio structure and asset allocation of PRPFX and, as we will
see below, has been highly correlated to the 14 ETF portfolio:
What top hedge funds have been buying [Hedge Fund Wisdom] Free e-book on Texas HoldEm Investing [Texas Hold Em Investing] Latest letter from Greenstone Value Opportunity Fund [Distressed Debt Investing] Citigroup (C) offers attractive risk - reward [Greg Speicher] Video: How Berkowitz got comfortable
with Citi [Morningstar] Summary of a recent talk
with SAC Capital's Steven Cohen [Dealbook] How Stevie Cohen changed my life [James Altucher] Hedge funds buying more municipal
bonds [CNBC] Sum of the parts valuation of Yahoo (YHOO)[Minyanville] Buffett says pricing power more important than good management [Bloomberg] Passport Capital
sees oil prices holding up [WSJ] Bank loan funds drawing interest [InvestmentNews] For more great links, scroll through this linkfest [AbnormalReturns]
Societe Generale is out
with the latest edition of their hedge fund watch and in it we
see that they've found hedge funds to have the «shortest position ever on
bonds.»
Muni
bond funds have
seen inflows of more than $ 30 billion this year alone,
with the week ended June 22
seeing the highest inflows in over three years at $ 1.4 billion.