Displaying items by tag: bonds

The Bureau of Labor Statistics reported that the US added 275,000 jobs in February which was slightly higher than expectations. However, the report indicated some softening in the labor market as job gains in January and December were revised lower by a collective 167,000, and the unemployment rate inched higher to 3.9%. 

 

It resulted in bonds moving higher as odds increased that the Fed would cut rates in June. Additionally, the number of hikes expected in 2024 also rose from 3 to 4. Most strength was concentrated on the short-end, which is more sensitive to Fed policy as yields on the 2-Year Treasury note declined by 10 basis points. There was much less movement on the long-end as the 10-year Treasury yield was lower by 3 basis points. Earlier this week, bonds also caught a bid as Chair Powell’s testimony to Congress was interpreted as being dovish. 

 

Overall, the jobs report perpetuates the status quo in terms of the Fed remaining data-dependent, while the path of the economy and inflation remain ambiguous. On one hand, wages and the labor market have defied skeptics who were anticipating a downturn. But there has been acute weakness in areas like manufacturing and services which have historically coincided with a weakening economy. 


Finsum: The February jobs report resulted in a slight rally for bonds as it increased the odds of a rate cut in June. Most strength was concentrated on the short end of the curve.

 

Published in Bonds: Total Market
Friday, 08 March 2024 05:12

Environment Primed for Active Fixed Income

Recent bond market volatility has caused discomfort for fixed-income investors, but it presents an opportunity for active management to potentially enhance returns. 

 

Despite efforts by the U.S. Federal Reserve to tighten monetary policy and curb inflation, uncertainty remains as to the future direction of interest rates. This uncertainty has led to fluctuations in bond yields, creating both challenges and opportunities for investors. 

 

By focusing on quality and liquidity, particularly in areas such as agency mortgage-backed securities, active managers can navigate these challenges effectively. As the market evolves, active management offers the flexibility to capitalize on changing conditions and uncover pockets of opportunity, potentially outperforming despite ongoing uncertainty.


Finsum: Macro uncertainty is giving active managers an upper handed in bond markets, and it could lead to additional alpha. 

Published in Bonds: Total Market

Emerging market bonds are offering a compelling opportunity for investors to lock in attractive yields while also having the potential for price appreciation. While there are many ways for investors to get exposure, the Vanguard Emerging Markets Government Bond ETF (VWOB) is one of the most liquid and diversified options. It currently pays a yield of 6.8% with an expense ratio of 0.20% and tracks the Bloomberg USD Emerging Markets Government RIC Capped Index.

 

Investing in emerging markets certainly means more risk due to lower credit quality, however the fundamentals are supportive of continued strong performance in 2024, while macro trends are favorable. JPMorgan estimates that emerging market economies will expand 3.9% this year, outpacing the 2.9% growth rate of developed market economies. It sees lower inflationary pressures due to weaker commodity prices which means that emerging market central banks should be able to cut rates, generating a tailwind for emerging market debt.  

 

In 2023, emerging market bonds were up 11%. JPMorgan is forecasting that the category should also have double-digit returns in 2024. It believes the major risk to this outlook is inflation not falling as expected which limits the ability of central banks to cut rates, especially since the market has already priced in modest easing. 


Finsum: Emerging market debt has major upside for 2024 due to attractive yields, strong fundamentals, and expectations that interest rates will be lowered. 

 

Published in Bonds: Total Market

Alternative investing was ascendant following 2022 when both stocks and bonds were down double-digits. The asset class proved its worth as it delivered positive returns while reducing portfolio volatility. 

 

2023 has followed a different script as the S&P 500 finished the year at new all-time highs, gaining 24%. Bonds also finished the year with healthy gains while continuing to provide attractive levels of income for investors.

 

Yet, there are no indications that demand for alternative assets is eroding. In fact, many wealth managers are now recommending an allocation of between 15% and 25%. According to Paul Camhi, a senior financial advisor at The Wealth Alliance, “Even after a great 2023 for stocks and bonds, we still believe that owning alternative investments as part of a properly diversified portfolio makes sense. We include these strategies as part of our strategic, long-term allocation, not as tactical short-term investments.”

 

Additionally, a survey of advisors by iCapital revealed that 95% plan to increase or maintain current levels of exposure. The survey also showed that 60% of advisors expect alternatives to outperform public markets this year. Within alternatives, private credit has seen the largest share of inflows. Buffered ETFs are also increasingly popular, especially for retired investors as they provide protection during periods of elevated volatility while still providing upside exposure during bull markets. 


Finsum: Alternative investments continue to see healthy inflows despite the strong performance of equities and bonds. Many now see continued benefits as it provides differentiated returns and diversification to portfolios.

 

Published in Wealth Management
Monday, 04 March 2024 07:38

Fidelity Embracing Active ETFs

Fidelity Investments launched a new active fixed income ETF this week, the Fidelity Low Duration Bond Factor ETF (FLDB). The ETF will invest 80% of its assets in short duration, investment-grade debt, consisting of floating rate notes and Treasuries, with a fee of 20 basis points. It seeks to balance credit risk and interest rate risk while outperforming benchmarks. 

 

Greg Friedman, Fidelity’s head of ETF management and strategy, noted, “It’s an asset class within fixed income that did not have any coverage until this morning. It fits a client's need to have that short duration exposure to a broad-based market of fixed income products.” 

 

Fixed income ETFs are experiencing a boom in terms of new issues and inflows. According to Tony Kelly, the co-founder of BondBloxx, assets in fixed income ETFs will reach 40% by the end of the decade from 20% currently. Active ETFs are finding traction as they allow for specific thematic exposure without sacrificing liquidity. Last year, assets under management for active ETFs increased by 37%. 

 

Fidelity is also jumping on the trend. In addition to launching FLDB, it debuted the Fidelity Fundamental Large Cap Value ETF (FFLV).  Its new line of ‘Fundamental suite ETFs’ will be active as it will utilize a quantitative overlay to their typical process. In total, Fidelity has 66 ETFs with $55 billion in assets under management. 


Finsum: Fidelity is betting big on active ETFs as it launched 2 new ones this week. Investors have been receptive to these products as it gives them narrow exposure in a liquid vehicle. 

 

Published in Bonds: Total Market
Page 2 of 150

Contact Us

Newsletter

Subscribe

Subscribe to our daily newsletter

Top
We use cookies to improve our website. By continuing to use this website, you are giving consent to cookies being used. More details…