So far, 2016 has been full of surprises, but most of the attention has gone to wildly volatile oil and stock prices. Less noticed, but equally important, has been the boost on bond prices, as seen by the dramatic fall in bond yields. The 10-year US Treasury note, the bellwether benchmark, started out the year yielding 2.27 percent, 10 basis points (a basis point is one hundredth of one percent)… Read More
You may or may not be a David Bowie fan, but either way, you’ll probably be surprised by his contribution to finance. In 1997, David Bowie was a wealthy man, but didn’t have enough cash to buy out the other 50 percent co-owner of the songs that he had written. He was buddies with an investment banker who proposed a novel idea: sell bonds using his song library as collateral… Read More
ALM Insights is focused on banks and other institutions that use their portfolio to manage risk on both sides of their balance sheet. It takes an in-depth look at securities investment strategies, balance sheet and asset/liability strategies, regulatory topics and general economic information. To view this issue, click the image below. In This Issue: We Have Liftoff! But I Thought Rates Went Up? Is The Canary Still Singing?
The junk bond market was under pressure again yesterday, but managed to finish off of their worst levels. The high yield market was roiled again after one hedge fund, Lucidus Capital, announced that it was shutting down its $900 million credit fund, and another hedge fund, Stone Lion, said that they were suspending redemption on their $400 million fund. This comes after news from last week that Third Avenue, a… Read More
Last September, I wrote that we avoid junk bonds because they are too sensitive to stocks, which means that a portfolio of stocks and junk bonds isn’t as diversified as a portfolio that has stocks and investment grade bonds (click here to see the original article). Over the last year, the S&P 500 has earned just 1.68 percent and suffered a 10 percent correction in the autumn. Junk bonds, as… Read More
Last week, I wrote about how losses at the Swiss mining company Glencore were affecting the overall market. In the article (found here), I said that bond prices in the market often reflect credit conditions before the ratings agencies like S&P and Moody’s make any changes. The Glencore situation may be a good example because bond prices have changed markedly in recent weeks as investors worry about their credit worthiness. … Read More
As stocks fell over the past several weeks, the junk bond market has also sold off as seen in the chart below. The orange line follows the Barclays High Yield, or junk, bond index and you can see how it has roughly tracked the S&P 500 this year. Some commentators have argued that junk bonds served as a bit of a ‘canary in the coal mine’ because they dropped off… Read More
ALM Insights is focused on banks and other institutions that use their portfolio to manage risk on both sides of their balance sheet. It takes an in-depth look at securities investment strategies, balance sheet and asset/liability strategies, regulatory topics and general economic information. To view this issue, click the image below. In This Issue: Janet Blinked What if You Called Them Market Perfectly? Part II Another Debt Crisis?
ALM Insights is focused on banks and other institutions that use their portfolio to manage risk on both sides of their balance sheet. It takes an in-depth look at securities investment strategies, balance sheet and asset/liability strategies, regulatory topics and general economic information. To view this issue, click the image below. In This Issue: Is Bond Market Liquidity Gone? Is Janet Bluffing? Looking at Deposit Alternatives
I’ve written a fair amount about negative yields in Europe (click here or here for a refresher), but the Swiss government crossed a new threshold yesterday by actually issuing bonds with a negative yield. Previously, bonds that were already trading in the secondary market had reached such high prices that they had a negative yield, but that’s quite different than an issuance with a negative yield because it means that the issuer actually… Read More
