Bonds: Total Market
(New York)
Inflation worries may have surged this Spring, but that has not helped real yields. When you compare the yields of stocks and bonds versus inflation, the truth is that real yields have turned negative. It is unusual for the S&P 500 to have a negative yield, which is currently at -0.81%. That is slightly better than 10-year Treasuries’ real yield of -0.87%. This has usually spelled trouble historically. Going back to 1970, there has only been one instance when the market did not decline at least 32% in the two years following the point at which yields went negative.
FINSUM: This is a pretty scary statistic, but then again, most historical contexts don’t involve a pandemic-induced country-wide shutdown and unprecedented government stimulus.
(New York)
Last week's jobs report was disappointing, to say the least, but bond market investors want to know what exactly this means for the recovery: Is this a blip or are we headed for a weakening recovery? Markets are signaling that it could be a slower tightening than they initially might have expected but upcoming data will help investors solidify their response. Job’s Openings and Labor turnover survey (jolts) will tell investors if there is a labor market slump. CPI inflation numbers on food and energy will tell investors how big the labor market spillover troubles are. Additionally, real average hourly earnings are included in this report to be released Wednesday. Finally, retail sales data is released for April on Friday. Growth is expected to slow already but the additional slowdown could be a warning.
FINSUM: These data releases are critical for not only what the bond market sees but what the Fed sees as well. If economic data slows this could change the cadence of the recovery and QE.
(New York)
After a consistent rise in yields in late February and March rates are finally falling. However…see the full story on our partner Magnifi’s site
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(New York)
The big inflation-driven bond sell-off has decidedly ended. In fact, bond yields have fallen considerably (with prices rising) over the last few weeks. The gains have prompted some investors to wonder if it is time to jump back into the long-term bond market. Goldman Sachs and Bank of America say an emphatic “no” to that idea. Goldman said the market moves this month have been “Noisy (and potentially temporary)”. They do not believe that yields will continue to fall, only that the chances of a big overshoot of how high they go have diminished.
FINSUM: Yields still seem likely to trend higher, but the market has bought into the idea that the Fed is not going to taper support any time soon, which means the lid is now on long-term yields much more tightly.
(New York)
Bond yields are on the rise, from long-term Treasuries to corporate bonds. However, Ray Dalio, founder of Bridgewater, says…see the full story on our partner Magnifi’s site
(New York)
The Pandemic has shifted the paradigm for many investors as they look to environmental, social, and governance (ESG) to make up a larger share of their portfolio. ESG will shape the future of investing but there is a new way to invest in green companies with a new twist. Sustainably linked bonds (SLB) allow firms to receive money for green energy initiatives but rather they will pay a penalty if they don’t meet expectations. Marilyn Ceci head of ESG development at JP Morgan expects SLB to hit $120-150 billion despite issuance since inception being only around $20 billion. SLB isn’t a threat to ESG as the industry is expected to grow from $270 billion last year to over $400 billion this year, but rather a compliment to the growing industry. ESG's ability to withstand the full business cycle is a testament to its future. FINSUM: SLB’s offer many companies a way to a greener future without an explicit plan, and are a reflection of how large ESG is growing. Other companies need a way to keep up with this burgeoning bond market.