|Bid||15.70 x 1300|
|Ask||16.25 x 800|
|Day's Range||16.01 - 16.08|
|52 Week Range||13.01 - 16.63|
|Beta (3Y Monthly)||0.04|
|PE Ratio (TTM)||11.56|
|Forward Dividend & Yield||0.79 (5.12%)|
|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.
This has been a bad two weeks for stocks in the U.S. The S&P 500 Index dropped 4.55% from this year's high on April 30 to a low on May 13. And while it is still up in price for the year to date by 15%, many investors are worried that the trade negotiations are not going swimmingly between the U.S. and China, at least in the short-term. That has led to more selling.Source: Shutterstock But while the drama continues with China, trade issues with the European Union and Japan got a break last week as automobile tariffs were put on hold. Hopefully that's some consolation for investors.One of the best antidotes for choppy stock markets -- or worse -- is to make sure that your portfolio has plenty of big, income-producing investments. Income does a few significant things for a portfolio. First, it provides a return that's independent from stock price gains and losses. Second, it pays you to be patient in unsettled markets. And third, it builds up a portfolio's value by either stacking up the cash or by re-investing those dividends.InvestorPlace - Stock Market News, Stock Advice & Trading Tips Dividend Stocks Aren't the Only KeyIncome investments start with stock dividends, but they are just one side of the coin. The other is found in interest and coupons from the fixed income market.Fixed income provides not only reliable income from bonds, preferred stocks and related funds -- but it can further balance out a portfolio providing a cushion when the stock market takes a pause or goes through a bit of selling. * 7 High-Yield REITs to Buy (Even When the Market Tanks) Income-generating investments have always been at the core of my research and recommendations. And I've had decades of experience in the bond markets, from trading to asset management. This has continued in my writings and newsletter recommendations, including for Profitable Investing.I view bonds and related investments not just as a shock-absorber for stocks, but as opportunities for income and growth. I continue to analyze credit conditions, supply-and-demand for issues and inflation and monetary policies to come up with strategies that will capitalize on obtaining risk-controlled higher yield with opportunities for underlying appreciation. And I also work just as I do for stocks -- to limit threats as they begin to emerge.And over the last year (and so far this year), I've been seeing the developments in the bond market which continue to favor corporate bonds and preferred stocks as well as the more buoyant and more credible municipal tax-free market. And with inflation as measured by the broad Core Personal Consumption Expenditure Index (PCE) remaining subdued the Federal Reserve and its Open Market Committee (FOMC) should remain neutral in policy -- which is good for fixed-income. And add-in the potential of easing by the FOMC to help off-set trade tensions -- it makes it even more supportive for the domestic US bond markets. Corporate BondsThe U.S. economy expanded at a great overall pace last year. And this year, the economy is also off to a great start, with first-quarter GDP up 3.2%. This means more spending by consumers which turns into more revenue for companies. And in turn, this means better corporate credit, which drives higher appreciation for corporate bonds by investors.I like corporate bonds, as they act like stocks. As underlying conditions improve, they improve in price. And along the way they pay more income. And given the outlook for the markets, I have allocations inside the model portfolios of Profitable Investing in this segment.One of the best means to get great exposure to the corporate bond market is via one of the best-researched-backed mutual funds run by Osterweis with its Osterweis Strategic Income Fund (MUTF:OSTIX).Osterweis Strategic Income Fund Total Return Source BloombergThe fund has a great collection of corporate bonds that are right in the middle of the successes in this segment. Year to date, the fund has generated a return of 4.29% and currently provides a yield of 4.37%. Preferred StockPreferred stock, also known as preferreds, are another form of corporate bonds. They look and trade like stocks, but they come with a call on assets just after bonds if something goes wrong. And they also come with reliable dividend flows that are typically fixed for investors. I like preferreds as a good blend of equity participation with improving credit and ample dividends.The one downside to preferreds is that they don't trade as often and with as much volume as common stocks. This makes mutual funds and ETFs ideal to gain access to good collections or representations for individual investors. I have allocations to preferreds inside the model portfolios of Profitable Investing.Like for corporate bonds, the fund market provides an easy means to invest as noted above. A great example to get started with can be found with the Flaherty & Crumrine Preferred Income Fund (NYSE:PFD).Flaherty & Crumrine Preferred Income Fund Total Return Source BloombergThis is a closed-end fund that is currently trading on the stock exchange at a discount to its portfolio of preferred stock and other assets. This means that you buy cheaper than if you bought the underlying assets. Year to date, the fund has generated a return of 17.5% and provides a yield of 6.7%. Municipal BondsWho doesn't like to get paid by their investments with either less or no taxes owed? The municipal bond market, or munis, provide great tax-advantaged income for investors. And last year and this year, the underlying market for munis has been getting better and better. The economy is growing, resulting in more tax and other revenues for muni issuers, which makes them more credible in the bond market. This, in turn, is bringing muni prices higher. With low inflation, the payouts are less threatened for over the coming years.And while taxes are down for lower-to-middle-income wage earners -- for investors and higher-income earners - tax rates are still high - making for munis to be even more advantageous. This in turn is driving more demand. And with less need to issue more - supply favors bond prices adding to the attraction of munis. I have allocations to this important market inside the model portfolios of Profitable Investing.Like for the preferred stocks, I like the closed-end funds for munis when they are trading at a discount to their underlying muni bonds. One of the best is the Nuveen Municipal Credit Income Fund (NYSE:NZF).Nuveen Municipal Credit Income Fund Total Return Source BloombergThe fund has generated a total return year to date of 17.9% and pays a yield of 5.1% which equates to a taxable equivalent yield of 7.85%. And the dividends are paid monthly as well.For more of my all-weather growth and income investments -- please take a look at my Profitable Investing which is now in its 30th year of publication. Click here to learn more: https://profitableinvesting.investorplace.com/Neil George is the editor of Profitable Investing and does not have any holdings in the securities mentioned above. More From InvestorPlace * 4 Top American Penny Pot Stocks (Buy Before June 21) * 7 High-Yield REITs to Buy (Even When the Market Tanks) * 5 Great Blue-Chip Stocks to Buy Today * 7 Tech Stocks to Buy That Are Also Perfect for Retirement Compare Brokers The post The Antidote to Trade Tirades, With More Income appeared first on InvestorPlace.
Even with the recent turbulence in the markets, the valuations still remain relatively high — and this makes it tough to find high yields. But there are certainly opportunities. Interestingly enough, one is with tax-free dividend stocks.