FINSUM + Magnifi: Income Investors Get No Help from High Yield Bonds
(February 2021)
Two junk bond indices, Bloomberg Barclays U.S. Corporate High Yield Index and ICE BofA US High Index Yield, hit record lows both dipping to about 4%. The early stages of the pandemic were good for returns in the junk bond market, benefitting from similar bullishness in the broader stock market. The Fed’s has increased access to liquidity and with this made it easier for lower tiers of corporate bonds to access funds. Low returns in the junk bond market have pushed cautious investors into relatively appealing treasuries and riskier investors into innovative strategies. Even riskier floating rate bonds, mortgage real-estate investment trusts, and collateralized loan obligations are catching the eye of investors looking to earn a higher return.
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FINSUM + Magnifi: Munis Still Look Attractive
(January 2021)
Advisors don’t need to be told that rates are at ultra-low levels. Yet despite this, munis are still maintaining their attractiveness. Muni issuance was at a recent high in 2020 (the highest level since 2013) with $3.9 tn outstanding. The reason why is that many municipalities have been seeing budget shortfalls because of COVID. Despite the big jump in issuance, demand has kept pace, with investors gobbling up as much as municipalities can issue. Demand has started well this year too, with muni ETFs seeing gains.
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FINSUM + Magnifi: The SEC May Make Big Changes to the Muni Market
(January 2021)
One of the big risks to the muni sector that has gone under-appreciated by the financial media and investing community is the threat of the soon-to-be revamped SEC making some big changes to the asset class. The reason for concern is that Elad Roisman was recently appointed interim chief of the SEC. Roisman has long had a focus on transparency in fixed income markets, which he and others at the SEC feel is too opaque. This has raised the risk of new regulation in the space. That said, his short tenure before likely being replaced by Biden will limit his time frame to change any policy.
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FINSUM + Magnifi: Big Near-Term Losses in Bonds May Have Just Begun
(October 2020)
Anyone watching the fixed income markets this week will have noticed a surprising and worrying trend: the yield curve steepened without any real positive signs from the economy. The spread between five-year and thirty-year Treasuries reached its highest point since 2016 this week. The reason why is that with Trump having COVID, markets have been betting more on a Biden victory and a possible blue sweep. That has raised expectations for more debt issuance as part of additional stimulus, all of which would change the supply and demand picture in the Treasury market.
FINSUM + Magnifi: The Best Bond Funds for These Volatile Times
(October 2020)
Not only is the market worried about the election and its possible contestation, but there is a pandemic and ultra-low interest rates complicating matters for the bond market. Some have compared the current rate environment to Japan, but in reality, it is worse since the US still has inflation, and thus genuinely negative rates. This has made fixed income one of the most volatile parts of any portfolio when it used to be the safe haven. So how can investors construct a robust and healthy allocation to fixed income? The key is balancing the need for income with the need for safety. Here are some top bond funds whose managers are seeking to do just that: the BlackRock High Yield Bond / BHYAX, the T. Rowe Price Spectrum Income / RPSIX, and the Baird Aggregate Bond / BAGSX.