It's important to remember that all higher -
yielding assets come with higher risks, but some of these risks appear more worth taking now.
Not exact matches
Appetite for riskier
assets such as stocks and high -
yield bonds has been suppressed by a number of factors that have
come up around the same time, but the headwinds may be transitory, according to the New York - based investment bank.
And reserve and other foreign
asset holdings have grown so large that EM investment preferences have
come to be seen as an important factor influencing global
yields and valuations.
The problem
comes because of the scarcity of
assets, one reason why high -
yield credit spreads have been tightening even as short term funding rates have risen.
Historically among the most volatile fixed income
asset classes (source: Bloomberg), a number of influences have
come together in recent years that may further increase the volatility of the high -
yield asset class.
The downgrade
comes after a rally in risk
assets over the past few weeks driven by the U.K.'s vote to leave the European Union on June 23 and the search for
yield amid expectations of easing.
You're essentially defeasing a portion of your liability with a lower amount of
assets than the value of that liability, and of course, the potential for higher
yield comes with greater risk.
As risky
assets like equities and high
yield bonds have
come under pressure, gold has rallied roughly 4 % (source: Bloomberg).
The reason
comes back to
yield: Although current
yields are low by historical standards, they look more compelling in the context of an ever shrinking pool of high
yielding assets.
I expect this combination to result in moderately higher interest rates and to support risk
assets (such as equities, commodities, high -
yield bonds, real estate, and currencies), and, therefore, I suggest being more bold than cautious in the
coming year.
ABCP will remain but with safer classes of
asset - backed securities, wider spreads, and larger margins of safety, at least until the next lust for
yield comes upon us.
Risk
assets (equities / credit) will have to
come to terms with potentially higher volatility, steeper
yield curves and higher rates.
The main difference between these charts
comes from which
asset class had better returns during a given time range: in one time period, the EAFE - heavy portfolio
yielded the higher returns, while in the later period, the pure U.S. stock heavy portfolio dominated.
When somebody invests in consumer loans, in the first several months, they typically get the full rate of return based on the interest rate of the loans, but when the charge - offs
come in, the
yield on that
asset comes down.
Besides the potential currency appreciation, the boom in Chinese debts
comes amid an increasing appetite for fixed income
assets in addition to the potential
yield pick - up offered in the current low - rate environment.
At present, insurance company
assets yield more than market rates, which gives a subsidy to customers, but the day will
come, like the late 70s — early 80s, where it was very much the reverse.
Equity
comes with the potential of offering superior
yields as compared to other
asset classes.
given the current market it probably does not matter where the «
yield»
comes from — there is a rally in oil trusts (a wasting
asset) and mReits (who made much of their 2012 «
yield» by realizing non-recurring capital gains).
It is doubtful that the CDO market will ever
come back in the same form for Mortgage REITs, but with so many legacy
assets out there, and the opportunity for Mortgage REITs to repurchase their own high
yielding CDO debt, understanding CDOs, FAS 159 and mark to market accounting is a critical foundation for conducting accurate research and due diligence on Mortgage REITs.
Majority of the rate sensitive stocks
came under pressure due to the rising bond
yield, and I decided to go little deep into debt and accumulate some
assets.
They often want low - risk, high -
yield plays, which are difficult to
come by given the intensely competitive investment landscape for real estate
assets.