It should not come as a surprise to anyone that markets have performed very well over the past five years. The S&P 500 has earned 16.12 percent per year in the five years that ended in February. Few investors realize that corporate bonds have also done very well over the past five years. For the five years that ended in February, the Barclays US Corporate Bond index has earned 6.22… Read More
A few weeks ago, I wrote about negative interest yields on bonds as long as ten years in Europe. (Click here for a refresher) The main point that I was trying to deliver (other than that it’s a crazy mixed up world) was that we really can’t say where yields in the US are going with much confidence. While that’s not a new argument coming from me, the idea that… Read More
One of my most vivid memories from the 2008 financial crisis was when the yield on the US three-month Treasury bill turned negative. Investors were so scared about what might happen that they were willing to pay so much for short-term bills that they would accept negative yields. Investors knew with certainty that they would get back less than their investment. I printed the screen because I thought it was… Read More
Yesterday, I wrote that the yield on the 30-year US Treasury closed at an all time low at 2.25 percent. I also wrote that the yield on the 10-year was 2.66 percent, which was completely wrong: it closed at 1.66 percent on Friday, I simply made a fat fingered mistake – sorry. This mistake notwithstanding, I was struck by the two yields because the all-time record-low yield on the 10-year… Read More
Last year, the Barclays Aggregate bond index (the Agg) gained 5.97 percent. Overall, our bond portfolios earned less than that – not a lot less, but less (it varies among clients, so I will be intentionally vague here). Also, while our returns were less on a relative basis, we are happy with the absolute number – mid-single digit returns are not too shabby for bond investors in the current interest… Read More
In the December 2012 issue of ALM Insights, I wrote an article titled Basel III’s AFS Provision. At the time of the article, the provision detailing the effects of Accumulated Other Comprehensive Income (AOCI) on regulatory capital had been delayed due to a “wide range of views”, and the final outcome was still very much up in the air. Few in the banking industry thought that forcing banks of all… Read More
Bond investors were expecting a lemon going into 2014 and got lemonade instead. Institutional investors tend to look down their noses at ‘retail’ investors, but they are frequently guilty of the same problems, which in this case, was recency. In general, recency refers to applying what’s happened in the recent past into the indefinite future. For bond prognosticators, interest rates rose and bond prices fell in 2013, so it was… 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: King Dollar Finally, A Regulation You Can Opt-Out Of Reading The Tea Leaves
While no one expected the yields on bonds to fall materially this year (and remember, falling yields translate into higher prices), some elements of the bond market performance have been perfectly normal. The chart below shows the year-to-date performance of selected bond indexes through Friday, December 12, in blue. The orange bars show the performance of each index since inception of the indexes in 1976 through the end of November,… Read More
A client called me last week and asked if I had seen an exchange traded fund (ETF) with a 20 percent yield. In fact, I hadn’t. The client said that he was sure that the yield was phony since it was so high that it was ‘too good to be true,’ but wondered how the ETF could have such a high yield. Good question. In this case, the product is… Read More
