Following the better than expected March jobs report showing a gain of 303,000 jobs, Treasury yields moved higher across the curve. The 10-year yield initially rose 14 basis points to a new 2024 high of 4.43% before backing off a bit. Overall, the jobs report reduces the urgency of the Federal Reserve to cut rates given the labor market’s resilience.

Going into the report, consensus expectations were for an increase of 200,000 jobs, which would be a softening from the 270,000 jobs added in February. It adds to the data showing inflation moving sideways rather than lower over the past couple of months. 

Yields also rose on Thursday following comments from Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, questioning the likelihood of rate cuts if inflation continues to linger above 2%. As a result, the odds of the Fed not cutting rates at the May and June meetings have increased. 

Some other positives from the report were the unemployment rate declining to 3.8%, despite an increase in the labor force participation rate to 62.7%. Average hourly wages increased by 0.3% on a monthly basis and by 4.1% annually. Both figures were in line with expectations. Job gains were strong across the board, with the biggest contributors being healthcare, government, leisure and hospitality, and construction. 

Finsum: Treasury yields moved higher following a stronger than expected March jobs report. Overall, the report led to a decrease in the odds of a rate cut at upcoming Fed meetings.

In 2023, the global financial markets experienced an unprecedented surge known as the "everything" rally, marked by significant gains in various asset classes. Factors driving this unexpected shift included lower inflation, the resilience of the U.S. economy, and the anticipation of looser monetary policies and declining interest rates in the near future.

Looking forward, private markets are poised to offer competitive returns and diversification advantages compared to public markets, with private credit emerging as a particularly promising strategy amidst prevailing interest rate challenges. Investors are urged to carefully evaluate the risks associated with private markets and consider their potential impact on portfolio performance.

According to JPMorgan, exploring alternative strategies for 2024, such as private equity, real estate, infrastructure, and secondary markets, presents opportunities for growth and portfolio enhancement, contingent upon thorough due diligence and selective fund allocation.

Finsum: As the Fed takes its foot off the gas pedal alts might in the biggest position to rally in 2024

A recent study indicates that private credit investments fail to yield significant additional returns once fees are factored in. Despite the allure of higher potential returns, the study suggests that the added expenses associated with private credit largely offset any potential gains. 

Researchers found that private credit funds typically charge higher fees compared to traditional fixed-income investments, which could erode investors' returns over time. This revelation challenges the notion that private credit offers superior returns, urging investors to carefully assess the costs involved before committing capital. 

The study underscores the importance of transparency and due diligence in evaluating investment opportunities, particularly in alternative asset classes like private credit. Consequently, investors are advised to weigh the potential benefits against the associated costs to make informed decisions in their portfolios.

Finsum: Alpha can be sucked up by fees but the real draw of private credit would be the uncorrelated returns.

Every day, 12,000 individuals from the baby boomer generation in the US turn 65, and by 2030, all baby boomers will have reached this age milestone. This demographic shift has led to a change in investment priorities, with baby boomers now seeking more protection-oriented financial products, such as annuities. Annuities offering downside protection and guaranteed returns have gained popularity over those promising high growth potential.

In 2023, the annuity market in the US saw record-high sales of $385 billion, largely driven by the demand for products with downside protection features. Fixed annuities and fixed index annuities, accounting for 67% of total annuity sales, have become the preferred choice, reflecting a significant shift from previous years. These annuities align with the risk preferences of baby boomers, offering market-linked returns while shielding investments from market volatility.

Fixed index annuities, in particular, provide an attractive option for retirees seeking stable income streams, combining potential market returns with downside protection. However, they come with limitations, including capped returns and surrender periods, necessitating careful consideration before incorporation into retirement plans.

Finsum: Demographic shifts have already had a major long-term impact on bonds, and now retirement concerns are shifting the landscape once again. 

Investors with over $250,000 are increasingly turning to separately managed accounts, allowing them to handpick municipal bonds with professional guidance. These accounts now hold $987 billion in assets, surpassing mutual funds, which hold about $769.7 billion.

This shift has significantly boosted business, with Franklin Templeton seeing a 50% increase in assets under management over the past year and a half. Lowering the minimum investment to $250,000 has made these accounts more accessible, though still beyond the reach of most Americans. 

However, advancements in technology are driving further accessibility, with potential for minimums to drop to $100,000 in the near future. With artificial intelligence breaking down barriers by making management for portfolio quicker to digest the minimums are bound to fall. 

Finsum: The SMA explosion is here to stay in the fixed income market and managers should watch the evolution.