I have been struggling to understand a problem that I am going to refer to as the ‘yield paradox.’ Yields for individual asset classes look low. The 10-year Treasury bond is yielding about 1.9%, and 30-year Treasury bonds are yielding a similarly paltry 3%. The S&P 500 is yielding 2.1%, which is very low by comparison to historical levels. Investment-grade corporate bond indexes are yielding less than 4% (see LQD, for example, at 3.8%). Given that the official rate of inflation for 2012 was 1.7%, these yields mean that investors are getting very little yield net of inflation. The very low yields on bonds and on stock indexes is a direct result of the Fed’s actions in holding interest rates at historical lows via Quantitative Easing. We have not yet gotten to the paradox. (more…)
Posts Tagged ‘Corporate Bonds’
The Yield Paradox
Posted in Asset Allocation, Bonds, Dividends, Risk, Stock Investing, tagged Corporate Bonds, junk bonds, Master Limited Partnerships, MLPs, Monte Carlo Simulation, mortgage reits, Municipal Bonds, Quantitative Easing, Treasury bonds, yield paradox on January 31, 2013 | 2 Comments »
A Thoughtful Outlook for 2013
Posted in Bonds, Dividends, Global Investing, Inflation, Market Outlook, Risk, tagged Corporate Bonds, dividend yield, emerging bond market, equities, global money management, inflation risk, Jason Hsu, market forecast, outlook, P/E, predictions, price-to-earnings on January 11, 2013 | 1 Comment »
In general, I ignore the spate of market predictions that experts issue at the start of each year. There are exceptions, and after reading Jason Hsu’s outlook for this year, I am pleased to recommend it to readers. Dr. Hsu is the Chief Investment Officer at global money management firm, Research Affiliates. I found his article both insightful and appropriately skeptical of all forecasts. How can you not appreciate a money manager who starts his prediction for the year ahead with John Galbraith’s quip that “the only function of economic forecasting is to make astrology look respectable”?
I am going to mention a few of the elements of Hsu’s outlooks and add some thoughts. Hsu first examines the drivers for bonds and then equities. I will follow this structure. (more…)
What Are the Core Asset Classes for Total Return Portfolios?
Posted in Asset Allocation, Bonds, Commodities, Diversification, ETFs, Inflation, Investors, Risk, Stock Investing, tagged Corporate Bonds, emerging market stocks, Emerging Markets, equity energy, fixed income, gold, government bonds, investing strategy, Municipal Bonds, real estate investment trusts, REITs, stock market index, TIPS, Utility stocks on November 28, 2012 | 1 Comment »
One of the most important questions for investors and advisors is identifying a set of asset classes that will be considered for inclusion in a portfolio. Some people will decide that all they need or want is one broad stock market index fund and one bond fund. Others will choose to include Real Estate Investment Trusts (REITs) and commodities. There are well-thought-out arguments that inflation-protected government bonds (TIPS) are a major core asset class. It is also quite common for investors or advisors to break stocks out into value vs. growth and small cap vs. large cap. (more…)
Implied Volatility: A Better Way to Gauge Risk
Posted in Active Investing, Asset Allocation, Behavioral Finance, Bonds, Diversification, ETFs, Investors, Leverage, Market Outlook, Market Timing, Markets, Risk, Volatility, Wealth, tagged bonds, calls, Corporate Bonds, ETFs, gold, gold ETF, implied volatility, Morningstar, options, puts, volatility on September 19, 2011 | 6 Comments »
If you ask most investors how risky corporate bonds are compared to government bonds, or to compare emerging market stocks vs. domestic stocks, you’ll find that most investors have a sense of the relative risk based on personal experience—but nothing concrete. If you ask the same investors how risky an investment in gold is vs. the S&P 500 their answers usually get even more ambiguous.
However, in the last several years, we’ve seen a remarkable (yet largely unheralded) new source of information to help investors determine the risk level of an asset class or sector. (more…)
The Markets’ Mood, September Edition
Posted in Markets, tagged Corporate Bonds, economic data, Emerging Markets, Lehman Brothers on September 14, 2010 | 1 Comment »
September can have a back-to-school feeling on Wall Street and a couple of news organizations put out stories in recent days that take stock of investor sentiment. They highlight some trends worth watching.
In a Reuters story reporter Angela Moon looks at volatility. September is traditionally the most volatile trading month of the whole year, and Moon finds that indeed investors have stocked up on options to protect against radical gyrations. Traders tell Moon the “datapalooza” coming this week will be important to watch. Including: retail sales due on Tuesday, industrial production and capacity utilization on Wednesday, the Producer Price Index and jobless claims on Thursday and the Consumer Price Index and University of Michigan/Thomson Reuters consumer confidence on Friday. (more…)
Implications of a 1% Yield for Bonds and Stocks
Posted in Income Investing, tagged 1% Yield, bonds, Corporate Bonds, IBM, Risk on August 12, 2010 | Leave a Comment »
IBM just sold 3-year bonds at a 1% yield, providing historically-low returns to investors. This level of yield on corporate bonds has substantial implications for long-term investors. First and foremost, yields this anemic make it hard to generate reasonable levels of income from a portfolio. Granted, this level of yield is about twice what you can get with a short-term government bond index fund which invests in bonds with average maturities of 1-3 years, but this is hardly an attractive situation. (more…)
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