FINSUM + Magnifi: JP Morgan Warns of Big Tech Correction
April 29, 2021
For anyone who has enjoyed the big rally in tech shares after the rough February through March period, JP Morgan has bad news for you. The bank says that while the reflation and “reopening” trade has paused for the last month, it is poised to resume. This would rotate capital out of growth and quality into cyclicals and value, which could pose big trouble for FAANGs and other tech funds. According to the bank, “With U.S. and Europe cases now declining, the fast pace of vaccination and seasonal tailwinds (Northern Hemisphere), we believe that the reopening and reflation trade will resume with a move that will be bigger than we saw early this year... As the COVID-19 recovery takes place, reopening, reflation and inflation themes, and value likely will significantly outperform growth and defensives”.
FINSUM + Magnifi: Goldman Sachs says High-Yield Bonds are Income Investors' Fixed Income Solution
April 13, 2021
The recovery has boosted the junk bond market as investors saw investment-grade bonds and government debt perform poorly in Q1. All but 10% of high yield debt is within five percentage points of Treasuries. This has put a squeeze on the possibilities of the return in the high yield market but it's the only fixed income market with any possibility of gains. But Goldman sees junk bonds going higher despite this, and that a growing economy with additional stimulus should provide an environment that produces good returns for more risky corporations. Additionally, junk bonds are uncorrelated with Treasuries and aren’t a hedge but diverse in a portfolio with
investment-grade and government debt.
FINSUM + Magnifi: Why Treasuries Could Not Look Worse
April 6, 2021
Q1 ended about as poorly as possible for the treasury market as losses according to ICE indices hit 4.6%, the worst quarter in over 40 years. The losses were highly concentrated on the longer end of the term structure. Inflation-adjusted (real) yields are negative on 10+ year government bonds. And market-implied 5-year inflation expectations are around 2.6% above the Fed’s target. Many would think that corporate bonds would be a reprieve from the losses but they too posted their worst quarter since the financial crisis. However 30-year yields are on an upswing and it may be the time to buy the dip on long-term treasuries.
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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