Displaying items by tag: bonds

(New York)

One of the financial industry’s most astute crisis callers has just told Barron’s that she thinks we are in for another financial crisis. Sheila Bair, former head of the FDIC, has successfully called the Enron scandal and the subprime crisis, and now she sees another one looming. The context is that Trump and the White House are leading the charge for less bank regulation, which Bair sees as crazy given this point in the cycle. According to her, “To loosen capital now is just crazy. When we get to a downturn, banks won’t have the cushion to absorb the losses. Without a cushion, we will have 2008 and 2009 again.”.

FINSUM: We are not supportive of too much loosening of bank regulation. Banks have been very profitable since the Crisis, and it is not as if the current regulatory paradigm is over-constraining them

(New York)

Famed bond fund manager Jeffrey Gundlach loves to put out scary warnings about the markets. Naturally, he often focuses on fixed income and macro themes. However, today he has a new prognostication. Gundlach says that Bitcoin is a good barometer for the direction of stocks. “Strangely, bitcoin seems to be the poster child for social mood and market mood”, says the bond fund manager, continuing “If stocks are going to take another tumble, I think it would be preceded by a bitcoin decline”.

FINSUM: We don’t think bitcoin and stocks have much relationship to each other. The factors that caused Bitcoin to fall (mostly regulatory concerns) have very little to do with why stocks fell.

(New York)

Despite a seemingly very hawkish Fed, bond traders just aren’t buying it, according to Bloomberg. Traders think the economy is burning very hot, and that the Fed, despite rhetoric, is actually content to just stick to only gradual rate hikes. According to one CIO, “The bond market is telling the Fed we see rising inflation pressures and if you are going to be gradual and crawl into three more rate hikes this year we are not going to wait around”, continuing “The long end of the yield curve is tightening for the Fed”.

FINSUM: Fed minutes did not show that the bank was considering four hikes this year, and the market thinks they should be.

(New York)

Many investors are currently worried about the bond market. There is a lot of uncertainty over just how much rates and yields will rise and what that might mean for the economy. Well, Bloomberg is taking a strong stand on the issue, arguing that a bond Armageddon is on the way. The paper says that all the focus has been on ten-years, but that 30s might be where the danger is. They are within shouting distance of their 2015-2017 highs, and are very close to the 3.24% level, which would signal the difference between an orderly selloff and a full-on rout.

FINSUM: There may be some short-term volatility, but our overall view is that there won’t be a cataclysm in bonds. Global populations are aging and people need income. We expected yields to stay in check and spreads to narrow even if sovereign yields rise.

(New York)

In an article that contrasts strongly to some others we are running today, here is a different view on bonds coming out of the Wall Street Journal—that the bull market is far from over. The argument is based on two interconnected factors. The first is that rates and yields do look likely to rise in the short term, but at the same time, there are many signs the business cycle is poised to end, which will bring on a recession. When that happens, yields will once again plunge, keeping the bond market surging.

FINSUM: If a recession does come then rates and yields will likely drop again. Unless of course inflation sticks around and we get caught in a stagflationary period.