Posts tagged: high-yield bonds

Something important about the global bond market (as of Feb. 28, 2017)

           Source: J.P.Morgan Asset Management

 

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Global Bond Market as of March 31, 2015

“The chart below shows the difference between estimated Global bond demand and supply. This mismatch aids in returns for fixed income, as more investors look to invest (creating more demand) with less supply to satisfy these needs. The left chart breaks down the sources of demand, showing that monetary easing has created a large portion of this demand as developed market central banks continue to purchase bonds to stimulate their economies.

The next slide highlights the growth in the fixed income markets and provides some data points to highlight some of the diversification benefits of different markets. Read more »

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Interesting facts about High-Yield bonds return and volatility

By Gershon M. Distenfeld, CFA

“High-yield bonds may look like other bonds, but they don’t necessarily act like them. High yield is not closely correlated with interest rates, and in fact, the asset has done well historically during periods of Fed tightening. Over time, the high-yield market exhibits a reasonable correlation to equities, as both are strongly linked to the business results and fundamentals of the companies they represent. But here’s something some investors may not realize: over the past three decades, high-yield bonds have delivered equity-like returns with much lower volatility“.

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Rising Rates: Time to Position, Not Panic.

It finally happened. After endless discussion about the potential for rates to rise, they finally did—in a big way. During May and June, the 10-year US Treasury yield soared by nearly one percent, and markets reeled. Instead of panicking, investors should make sure their portfolios are positioned effectively. Even with the Fed planning to keep short-term rates nailed down for a while, our forecast is for generally higher rates ahead. While there won’t necessarily be a big leap like the one in the second quarter, investors should be positioning their bond portfolios for the reality of higher rates.

The good news: the bond market isn’t a monolith. There are a lot of ways to reduce a portfolio’s sensitivity, or “beta,” to interest rates while staying true to investment goals. The display below uses US Treasury returns to represent the behavior of an extremely interest-rate-sensitive sector. A sector with a beta to Treasuries that’s close to one is also highly rate sensitive. A beta of zero indicates a sector with no relationship to Treasury returns. When it comes to rising rates, the lower the beta the better. Read more »

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