The Yield Curve, with the 10yr minus 3mo Treasury rate, is rising rapidly as investors anticipate more persistent inflation. Portfolio managers expect a significant rate decline, but recent industrial earnings reports and guidance suggest a shift towards industrials. This signals a turning point away from the sole focus on high tech investments to broader options.
Convertible bonds are regaining popularity in the strong US economy, with issuance surging in 2023 and 2024. They offer lower coupon rates compared to straight bonds and the potential for equity growth, making them attractive to both issuers and investors. Convertibles can effectively improve portfolio diversification and offer opportunities for investment.
The Fed kept rates unchanged at the May FOMC meeting, marking the sixth consecutive meeting without action. Rate cut expectations have shifted dramatically, with implied probability for fewer than two rate cuts. Chairman Powell appears inclined to cut rates, but data must lead the way. Quantitative tightening plans are also in focus for 2024. The Fed’s dot plot suggests fewer than three rate cuts may be reasonable.
Investors are holding back funds due to high money market rates, but with the Federal Reserve expected to cut rates, short-term bond funds may become more attractive. Portfolio managers believe that short-term bonds can benefit from rate cuts and offer good returns. Fidelity offers options like FLDB and FLTB to capitalize on this opportunity.
The content provides a comprehensive overview of indices, bond spreads, and yield curves. It also includes information on various bond indexes and investment risks. Additionally, it highlights the role and responsibilities of Madison Investments. The report emphasizes the need for careful consideration of investment objectives, risks, and charges before investing in Madison Funds.
The U.S. Presidential election’s potential impact on the municipal bond market is drawing investor attention. The future of the 2017 Tax Cuts and Jobs Act (TCJA) is critical, as different election outcomes would likely affect tax rates and municipal bond demand. Regardless of the outcome, the tax-equivalent-yield advantage of municipals is set to remain significant.
The Fixed Income Symposium highlighted the complexities of the current fixed income landscape. The discussion focused on the potential for credit risk in fixed income investments, particularly in high yield and investment-grade corporates. With a preference for yield, investors are considering high yield options, while American Century Investments and Goldman Sachs offer a range of fixed income ETFs.
The Schwab 5-10 Year Corporate Bond ETF (SCHI) has a high duration and exposure to corporate credit. The Fed’s concern about maturity walls in 2024 and 2025 may lead to lower nominal rates. With 90% portfolio exposure in industrials and financials, the ETF’s value compared to better credit-calibrated instruments may be dampened. Consider exploring international markets for value-investment opportunities.
The Vanguard Ultra-Short Bond ETF offers a solution for fixed income investors concerned about potential rate hikes. With a focus on short-term debt, it mitigates rate risk and boasts a 30-day SEC yield of over 5%. Investors seeking a longer yield curve can consider the Vanguard Short-Term Bond Index Fund ETF Shares, which tracks a diverse bond index.
Volatility in the Treasury bond market is once again flirting with its recent lows. That could be good news—or it could be the forerunner of
Fixed income investors have faced a tumultuous year with rapid rate changes and anticipation of rate cuts. Instead of waiting on U.S. fixed income, consider high yield Asia bonds for lower interest rate risk and improving credit outlooks. The KraneShares Asia-Pacific High-Income Bond ETF (KHYB) offers reduced rate sensitivity and credit risk, making it an intriguing option.
China plans to issue $139 billion in ultra-long bonds to stimulate growth. This presents investment opportunities in ETFs domestically and in the US, offering higher yields. Investors can consider Vanguard Long-Term Bond ETF (BLV), Vanguard Long-Term Treasury ETF (VGLT), and Vanguard Long-Term Corporate Bond ETF (VCLT) for long-term debt exposure.
Record issuance of municipal bonds is flooding the debt market, providing an attractive supply. With the possibility of rate cuts, issuers are taking advantage of the situation to issue more debt. Municipal bonds offer high credit quality and attractive yields, making them an ideal choice for investors seeking balance between yield and credit risk.
Asset managers have varied economic expectations, with bond futures predicting a decrease in the Federal Reserve’s short-term federal-funds rate to avoid a recession. The concentration of BBB rated corporate bonds in the market is close to an all-time high, posing potential risk in a recession. Despite recent performance, funds heavily invested in BBB debt warrant consideration for diversification.
