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|Day's Range||106.64 - 106.77|
|52 Week Range||106.64 - 106.78|
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Treasury yields continue to spiral downward as investors pour money into safe haven government debt in order to stem the tide as the stock market begins to show signs of weakness. The latest decline in yields may cause fixed income investors to wonder whether a scenario is possible where negative yields exist?
The capital markets are definitely keeping a watchful eye on the 2-year and 10-year yield curve, which briefly inverted during Wednesday’s market session. An inverted yield curve is of particular interest as a tried-and-true recession indicator. “The US equity market is on borrowed time after the yield curve inverts.
Sentiment seemed to take a dramatic turn following the FOMC announcement that rates would be cut 25 basis points, yet this would only be part of a “midcycle adjustment to policy,” according to Fed Chairman Jerome Powell. “Let me be clear: What I said was it’s not the beginning of a long series of rate cuts,” Powell said. You would do that if you saw real economic weakness and you thought that the federal funds rate needed to be cut a lot.
Market volatility is opening the pathway for investors to flock to safe haven government debt, which is causing yields to fall. As such, a yield curve inversion—a typical sign ahead of a recession—is forming with respect to the 2- and 10-year Treasury yields. This should cause the rate-sensitive 2-year note yield to fall as well, but that hasn’t been the case even with the change in the central bank’s interest rate policy.
Investors have been treating themselves to a healthy diet of bonds given the latest volatility as the U.S.-China trade war reaches new heights. This risk-off sentiment is fueling a nosedive in safe haven ...
Rate cuts and trade wars have been giving investors more than the necessary dosage of volatility as of late, but it opens up opportunities for fixed income exchange-traded fund (ETFs). For investors looking for that safe-haven bond exposure, it might be best to start with the largest provider of fixed income ETFs. "While the growing adoption by wealth management and institutional investors is a boon for most asset managers, certain firms are favorably positioned relative to others.
It doesn’t matter if it’s in the long or short end of the yield curve, with violent market movements like those investors have been experiencing lately, it’s a reminder that a move to bonds can benefit ...
It’s easy to overlook bonds as opposed to equities given their more static returns in nature as opposed to the more dynamic stocks that can move and shake when markets are roaring, as well as vice versa. While bonds may not be ideal for the adrenalin-fueled investor, they can still gain that much-needed fixed income exposure via exchange-traded funds. Janet Brown, a finance contributor at Forbes, cited three common misconceptions investors have when it comes to core fixed income exposure—bonds are a high risk proposition when rates rise, they don’t generate enough returns and they’re only ideal for retirees.
With the extended bull run raging on, it's been a boon for high yield fixed income investors where a risk-on environment has been fueling gains within the riskier bond classes. With the high yield market getting more risky, it's necessary for investors to shed some of that risk and get more strategic with their capital allocation. "As a credit debt holder, you've got no upside, you only have downside [at this point]," said Pilar Gomez-Bravo, director of fixed income Europe for MFS Investment Management.
As a result, high yield has underperformed lately as investors flocked to the safer confines of quality oriented assets like investment-grade debt issues. "The market was clearly pricing in a good chance of a trade deal in May and that did not happen," said Todd Schomberg, senior portfolio manager for Invesco Fixed Income. "I wouldn't call it a full-blown flight to quality," said John Hollyer, principal and global head of Vanguard Fixed Income Group.
As the capital markets were in the thick of the extended bull run that peaked in the summer prior to the October sell-offs, high-yield assets saw an influx of investor capital, beating out their higher-rated rivals in investment-grade corporate bonds. After investors got washed through the October volatility cycle, that may have tamped down their risk-on sentiment and this is where Goldman Sachs sees a potential buying opportunity after investment-grade debt fell out of favor during the bull run. With investors hungry for risk, the yields in investment-grade corporate bonds weren't enough to satiate that appetite.
The iShares Intermediate-Term Corporate Bond ETF (IGIB) is the new look on the exchange traded fund formerly known as the iShares Intermediate Credit Bond ETF (CIU) . IGIB “seeks to track the investment results of an index composed of U.S. dollar-denominated investment-grade corporate bonds with remaining maturities between five and ten years,” according to iShares. IGIB tracks the ICE BofAML 5-10 Year US Corporate Index.
Come September, emerging markets will be watching the Federal Reserve closely with respect to monetary policy or even more specifically, what the central bank decides to do with interest rates. A rising dollar could mean financial instability for emerging market nations trying to pay outstanding U.S. debt obligations with local currencies. Rising interest rates may also discourage foreign investment into emerging market nations in favor of assets based in the U.S.
VCIT, one of the largest intermediate-term corporate bond exchange trade funds, is also one of the least expensive funds in this category. “This fund is one of the lowest-cost options in the corporate-bond Morningstar Category, and it has a strong index-tracking record. VCIT, which holds over 1,700 bonds, has an average duration of 6.3 years.