|Bid||13.52 x 1000|
|Ask||13.53 x 1000|
|Day's Range||13.44 - 13.60|
|52 Week Range||9.12 - 14.91|
|Beta (5Y Monthly)||0.60|
|PE Ratio (TTM)||6.67|
|Forward Dividend & Yield||1.01 (7.40%)|
|Ex-Dividend Date||Jul 14, 2020|
|1y Target Est||N/A|
By now you've heard plenty of talking heads on television saying all sorts of scary things about the inverted yield curve for United States Treasury bonds. And if you missed the headlines, you'll be reading them popping up in news feeds and in the papers.Source: Shutterstock A yield curve is the plotting of bond maturities and their yields from shorter-to-longer-term. It shows how the market for any type of bond is being bought and traded. Normally, shorter-term bonds have lower yields than longer-term maturities.This is because the longer the maturity, the greater the risk of inflation baring its claws making for future interest payments. This also means that the eventual principal payment will be worth less in inflation-adjust terms. Longer-term yields tend to be lower because they must also price in credit risk. The longer the maturity, the greater time for credit in any given market sector to gyrate or deteriorate, putting future interest and principal payments at risk.InvestorPlace - Stock Market News, Stock Advice & Trading TipsA normal yield curve should connect the dots of yield on the y-axis and maturities on the x-axis. It normally rises in yield as maturity dates stretch out. What Does Today's Yield Curve Mean?But an inverted yield curve is when shorter-term maturities are yielding more than longer-term maturities. And when it comes to the U.S. Treasury bond market, the generally accepted definition is when the 2-year Treasury yield is lower than the 10-year Treasury yield. * 10 Stocks Under $5 to Buy for Fall This kicked in early yesterday when the 2-year was at a little bit past 6:00 a.m. I was working to finish up my papers with my Bloomberg Terminal humming along. The 10-year dropped to 1.62% and the 2-year was sitting at 1.63%. This hasn't happened since 2007, when on Feb. 22 the spread was a negative 15.41 basis points, or 0.1541%.Today's Trading (In Yield%) for U.S. 2-and-10-Year TreasuriesHistory of Yield Spread between 2 and 10-Year U.S. Treasury Bonds Now since yesterday morning, the bond market has sent the spread back to positive, which is normal, for the 2-and-10-year maturity yields. Before I get into what this means, what is causing it, why you should care and what you need to do -- let's look at what the U.S. Treasury bond market has done over the trailing year.From Aug. 14, 2018 through to yesterday, Treasury yields outside of the 1-month bills have all dropped, and longer maturities have dropped even more.In the next graph I've plotted the curves for both dates and the resulting yield changes.U.S. Treasury Bonds (Actively Traded) Aug. 14, 2018 and YesterdayWhat has been causing this to occur? First up, the U.S. Treasury has been issuing more bonds with shorter maturities for some time as part of their funding for the U.S. government. This means more supply, which will influence market pricing. Second, inflation has been low and generally falling over the past many months.The Personal Consumption Expenditure Index, which is the prime gauge used by the the Federal Reserve and its Open Market Committee, has gone from bobbling around the 2% down to a current level of 1.6%. The PCE is a much better and more broad inflation gauge than the Consumer Price Index, as the PCE measures all consumption and not the contrived basket of goods and implied costs for other things including residential expenses.U.S. Core Personal Consumption Expenditure IndexAnd the core PCE, which is also calculated in quarterly Gross Domestic Product data, is running for the second-quarter data release at a rate of 1.4% in the deflator calculations of the GDP growth rate of 2.4%.So, inflation is low and down, and well below the stated target range of the FOMC of above 2% -- and even higher for what it deems as a healthy level for a growing economy.This means that while the FOMC has already reversed course with its target range for Fed funds at its July 31 meetings, I think it is likely that it will further ease in its meetings concluding on Sept. 18, Oct. 30 and Dec. 11 of this year. This reversal of target ranges for Fed funds is reminiscent of when it reversed in 1995-1996 and in 1998.This makes longer-term bonds all the more valuable to lock in yields for the longer term. Now normally, falling yields means falling GDP growth and a weakening economy. But that isn't as much the case right now. Growth in the U.S. economy remains good as just noted above for the most recent data, and there is good reason to see it continuing. U.S. consumer spending drives the vast majority of the economy. And my preferred gauge of consumers is the Bloomberg Consumer Comfort Index, which I refer to as the "Comfy Index."Bloomberg Comfy IndexSince late 2016, the Comfy Index has been climbing and is very well-positioned in the excellent range. This means that consumers should be eager to spend and have the ability to do so -- particularly as U.S. wage growth has continued to be multiples of core PCE inflation.And businesses continue to expect rising activity over the next six months, as I utilize the Federal Reserve Bank of New York's survey data for projections.U.S. Business Leaders Expected Business Activity (Six Months Forward)So, rather than the sickening economy that many are worried about, the U.S. economy continues to show better conditions. What Is Happening With the U.S. EconomyBut what really is happening is that the U.S. is the haven economy in a world where Europe is in trouble and the leading economies of Asia are slowing. And as a result, yields for government bonds from the leading issuers in Europe and Asia are increasingly heading into negative yields.Negative yield come as coupon rates (stated interest rates) are issued at low or near-zero rates. The markets at auction as well as the secondary market bids the bonds to prices above par ($100), which brings the yields below zero. Take for example a German bund (government bond) with a coupon of 0.5% and a maturity of Feb. 15, 2025. It has recently been trading in the market for $106.75 which means that for each bund you'll pay $1,067.50 euros along with $2.19 euros in accrued interest for an effective yield to maturity of -0.69%. That's because the bund will mature at $100, or $1,000 euros, which prices in a loss of $67.50 euros and offsets the coupons.Negative yields and interest rates around the world beyond the U.S. are rapidly becoming a growing problem as the amount of bonds with negative yields keeps climbing by the day to a current level of $15.8 trillion.Negative Yield Debt Around the GlobeThis in turn is making the U.S. bond market all the more attractive with positive yield, and is driving more buying from investors in the U.S. and beyond. And with more buying of longer-term bonds, yields are down and prices are up. Why Investors Should Care About the Inverted Yield CurveYou should care, because this is good -- for now -- for the U.S. economy. Lower interest rates and yields means lower borrowing costs for everyone from the government to corporations and individuals. And this in turn should further aid the growth of the U.S. economy, along with lower inflation pressures over time with lower borrowing costs.And this shows up in how well U.S. bonds are performing in total return from all bonds to my preferred markets in higher-yielding corporate bonds and municipal bonds.Look at the performance year to date for all U.S. bonds (in aggregate), corporate high yield and municipal bonds as tracked by Bloomberg Barclays.U.S. Aggregate Bond (White), U.S. High Yield Corporates (Orange) and Municipal Bonds Total ReturnOverall, U.S. bonds in aggregate have returned 8% year to date. Corporate high-yielding bonds have returned almost 10% and municipal bonds generated 7%. Securities to Focus OnNow, stocks have been choppy recently -- with trade tariff concerns and global economic trouble outside the U.S. But not all stocks have been in the crosshairs of sellers. I continue to guide my Profitable Investing subscribers to hone in on U.S.-focused stocks. This list includes real estate investment trusts such as my favorite W.P. Carey (NYSE:WPC) and utilities such as my favorite NextEra Energy (NYSE:NEE). And these sectors have been and should continue to benefit from lower U.S. interest rates and yields.And with mortgage loans climbing with rising property market values and consumer confidence, U.S. mortgage investment companies such as my MFA Financial (NYSE:MFA) should continue to deliver.But for U.S. bonds -- focus on the BlackRock Credit Allocation Income Trust (NYSE:BTZ) for corporate and other bonds trading at a discount to net asset value by 8.6% and yielding 5.9%. Investors should also focus on the Nuveen Municipal Credit Income Fund (NYSE:NZF) trading at a discount of 3.8% to net asset value and yielding a tax-equivalent yield of roughly 7.5%.The yield curve isn't a threat -- but simply a measure of market activities and developments as well as an indicator of expectations going forward. It is a tool for investors which should be used and not just feared.Now that I've presented my way to invest with an inverted yield curve, you might like to see more of my market research and recommendations. For more -- look at my Profitable Investing. Click here to learn more.In addition, if you find yourself in San Francisco Aug. 15-17, please join me at the MoneyShow. There I'll be presenting my economic and market analysis and my latest investment themes and recommendations.Neil George is the editor of Profitable Investing and does not hold any of the aforementioned securities. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 15 Growth Stocks to Buy for the Long Haul * 5 More Cloud Stocks With Plenty of Potential * 5 Clean Energy ETFs to Buy for 2019 The post What an Inverted Yield Curve Means (And What It Doesnat) appeared first on InvestorPlace.
One of the most important questions that investors need to ask is how their portfolios will fare during times of crisis. When the S&P 500 Index takes a dive, will their investments dive alongside it? Or will hold up or even rally?Source: Shutterstock My approach in Profitable Investing is to present an allocation to both stocks and fixed income which provides growth and income along with shock absorbers to steady the gyrations of the general stock market.This comes with lots of income from my recommended dividend stocks, as well as the heavy income from coupons and interest paid by bonds, preferred stocks and related funds.InvestorPlace - Stock Market News, Stock Advice & Trading TipsBut I can offer further perspective on investments that work better during general stock market sell-offs. It only takes a few bits of financial history to see what worked when the S&P 500 Index wasn't your friend. How to Invest in a CrisisTake for example its recent move from its high on July 26 through Thursday. The S&P 500 Index dropped by 4.7% in price, and yet there were plenty of investments which were not just holding up, but rallying. * 8 Dividend Aristocrat Stocks to Buy Now No Matter What I'll start with real estate investment trusts (REITs). REITs continue to be a go-to investment sector during many of the challenging market times over last year and through 2019, including the drop from July 26. The Bloomberg US REIT Index was up 1.4% during the recent plunge.S&P 500 Index July 26 to Date Total Return (White) Against REITS (Orange) Utilities (Yellow) US Bonds (Red) and Franco-Nevada (FNV) (Green) Source BloombergREITs continue to fare well because of their solid, real assets which generate dependable revenue flows which in turn fuels ample dividend income. In addition, most U.S. REITs are either totally focused on the U.S. market or are mostly focused on the U.S. property market. This insulated them from the global economic malaise as well as trade tensions between the U.S. and China.Next up is the U.S. utilities market. Utilities as tracked by the S&P Utilities Index rallied by 0.34%. That's not much, but it beats losing money. Utilities continue to benefit from the dependability of solid regulated businesses which provide set profit margins. And they also benefit from additional growth and income from unregulated operations, providing ancillary operations from power generation and transmission to other larger-scale essential services.They therefore have dependable income for better dividends than for the general stock market with the addition of growth prospects from the continued improvement in the general US economy.Then there's the bond market. I've always been a fan of bonds. That was one of my focuses in my professional life. U.S. bonds continue to benefit from low and falling inflation, rising demand, limited new supply and improving credit conditions from many issuers of bonds. The Bloomberg Barclays Aggregate US Bond Market Index rallied for the period by 1.8% as traders got further on board as stocks were sinking.And of course, U.S. bonds are ever more attractive in their yield as more and more of the major global bond markets have ever deepening negative yields.And last up in my suggested arsenal of crisis investments is gold. But just owning gold isn't as good as my preferred way of owning gold which pays a dividend. Gold of course did rally for the same time period. But gold costs money to buy and store it. Even the SPDR Gold Shares ETF (NYSEARCA:GLD) costs 40 basis points (0.4%) per year to deal with its underlying assets. But for me, I like the idea of just buying the proceeds of ongoing gold production. This is called gold streaming. And one of the best in the business is Franco-Nevada (NYSE:FNV).This Canadian-based company has shares that easily trade on the U.S. exchanges. It doesn't mine gold, it buys and owns royalty and other interests in gold and other mineral production which streams income to the company. It then pays out part of the proceeds in the form of a dividend which currently yields 1.06%.And for the trailing year, Franco-Nevada outperformed GLD, with 33.1% in total return against 22.8%. And this isn't just a recent development, as the company has generated a return over the trailing five years which is better than GLD by a margin of 6.22 times better.Now, let's take a look at a stormier period of time for the S&P 500 Index -- the fourth quarter of 2018. The Index dropped by 14%, and yet the utilities rallied by 1.4%, U.S. Bonds rallied by 1.64% and my gold play in Franco-Nevada rallied to return 12.56%. Only REITs dropped, but by a much better margin than the S&P 500 Index. they lost 6.1%, far better than the plunge of the general stock market.Fourth Quarter 2018 Total Returns (Same as Above) Source BloombergNow, many REITs did much better than the overall U.S. REITs market. including one of my favorites -- WP Carey (NYSE:WPC) which generated a positive return for the fourth quarter by 3.21%. And during the plunge of Aug. 5 -- WPC held and rallied by 0.23% while the S&P 500 fell by 2.97%.For the general REIT market -- the easy-peasy way to gain crisis protection can by found in the Vanguard Real Estate ETF (NYSEARCA:VNQ). This provides synthetic exposure to the US REIT market at a ultra-low cost.And for U.S. utilities, Vanguard again is a good go-to source. Its Vanguard Utilities ETF (NYSEARCA:VPU) which provides good synthetic exposure to U.S. utilities at a low cost.For gold, I've already made part of my case for Franco-Nevada as the best gold play in the U.S. market.And for U.S. bonds I have another specific investment recommendation which subscribers of Profitable Investing will recognize. US bonds are performing very well this year with inflation low and falling with the core Personal Consumption Expenditure Index (PCE) falling over the trailing year to a current 1.60% - well below the Federal Reserve Bank Open Market Committee (FOMC) target above 2%.Core PCE Source BloombergU.S. bonds continue to perform well with the lower inflation and improving supply-and-demand conditions noted above. And when looking at the rest of the major global bond markets, the U.S. yields are still very much in the attractive positive range while the amount of negative yielding bonds keeps soaring in amount as non-U.S. bond investors are so desperate that they are effectively paying to own bonds. The total amount as tracked by Bloomberg & Barclays is now at $15.62 trillion.Amount of Negative Yielding Bonds Around the Globe Source Bloomberg & BarclaysNow, U.S. bonds have been good performers during crisis and prosperity this year with the overall return as tracked by Bloomberg Barclays at 8%. But I continue to advocate buying corporate higher-yielding bonds which have turned in a better return of 9.4% year to date.And one of the best means to capitalize on U.S. corporate higher-yielding bonds is to buy the BlackRock Credit Allocation Income Trust (NYSE:BTZ). This closed end fund yields 6% and yet trades at a whopping discount to its net asset value by 9.1%. And year to date, it has generated a return of 23.9%.Bloomberg Barclays US Aggregate and High Yield Returns Compared to BlackRock Credit Allocation Income Trust (BTZ) Year to Date Source BloombergNow I've presented my way to invest during the recent times of crisis, perhaps you might like to see more of my market research and recommendations for further safer growth and bigger reliable income. For more - look at my Profitable Investing. Click here to learn more.In addition, if you find yourself in San Francisco on Aug. 15-17, please join me at the MoneyShow, where I'll be presenting my economic and market analysis and my latest investment themes and recommendations. For more information, click here: https://www.moneyshow.com/Neil George is the editor of Profitable Investing and does not have any holdings in the securities mentioned above. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 8 Dividend Aristocrat Stocks to Buy Now No Matter What * 7 Stocks to Buy to Ride the Vegan Wave * 4 Safe Stocks to Buy Amid Trade War Turbulence The post Successful Crisis Investing (With Dividends!) appeared first on InvestorPlace.