19 Dec 2016

Bond Market Fascinations: An Interview

Since the election, interest rates have risen across the curve.  The Federal Reserve raised short term interest rates last week for the first time this year, but perhaps more importantly, longer term rates have also risen, which means falling bond prices. Right now, the Barclays Aggregate Bond index is still positive for the year, but the gains are muted, especially compared to the 5.8 percent gain that they enjoyed just… Read More

30 Nov 2016

Inflation On The Horizon

Interest rates are higher and once again it has a lot of investors paying attention to the interest rate risk in their portfolio. Since the Ten-year yield dropped to 2% at the depth of the financial crisis we have had multiple periods of volatility in the bond market when rates rose only to fall back down or in some cases go even lower. Each time the reason was a little… Read More

21 Nov 2016

Bond Rally and Rout to Nowhere

It’s not a stretch to say that 2016 has been full of surprises! One of the big surprises from our perspective up until the election was the decline in interest rates and corresponding strong return that bonds delivered. I wrote about the surprising decline in yields as early as February and was going a little bananas as yields throughout the world went negative (here, here and here).  We never went… Read More

15 Nov 2016

Trump and the Reflation Trade

At this point, my view is that most of the market activity since the election can really be broken down into two distinct categories. The first category are stock sectors that clearly stand to win or lose from expected changes in government policy.  The most obvious winner is bank stocks, which will benefit from lighter regulation.  The big loser is hospital stocks that will lose Obamacare related revenue. The second… Read More

12 Sep 2016

The End of Summer Break

The end of summer was notably quiet, but summer is over and judging from Friday’s market reaction, it appears that volatility may be back. The chart below shows the expected volatility priced in to options as measured by the Chicago Board of Exchange (CBOE) Volatility Index (VIX). You can see the volatility was high at the start of the year when we suffered a 10 percent correction.  Expected volatility cooled… Read More

6 Sep 2016

Lower For Longer: The View from Tokyo

Several years ago, I was convinced that bond yields were likely to move higher simply because they were at historic lows.  As time went on and bond yields fell to even more historic lows, I changed my tune. People asked me how much lower they could go and while I didn’t really know the answer, I would simply quote the yields in Germany and Japan, which were lower. Then, I… Read More

29 Aug 2016

Yellen Speaks, Market Yawns

Yellen’s long-awaited speech delivered little in the way of surprises, but she did say that ‘the case for an increase in the federal funds rate has strengthened in recent months.’ Still, consistent with previous statements, she reiterated that the outlook remained uncertain and that Federal Reserve policy is not on a preset course. The bulk of her speech outlined the Fed’s current toolkit, which includes rate cuts, asset purchases (quantitative… Read More

22 Aug 2016

Awaiting a Positive Economic Shock

Last week, I attended a ‘first annual’ Wealth and Asset Management research conference held at Washington University’s Olin School of Business. The basic idea behind the event was to connect top tier academics with local practitioners, which seems obvious given Wash U’s stature and the fact that St. Louis has more people working in financial services than any other city outside of the big apple. I was drawn by presentations by… Read More

28 Jul 2016

Fed Seems Hawkish to Media, Not Markets

As expected, the FOMC left rates steady following its July meeting, noting that the labor market had strengthened since June and that economic activity had been expanding at a moderate rate. Ryan Craft noted that the media is talking as if the Fed was quite hawkish, but the markets didn’t behave that way.  He noted that yields were falling sharply, stocks were largely unchanged after the news and that fed… Read More

6 Jul 2016

Negative Swiss Yields Get Even Crazier

One of the more striking headlines yesterday was that Swiss government bonds now have negative yields out 50 years – that’s right, 50 years! That’s a little hard to fathom, partly because we don’t have bonds that extend that far, but also because 50 years is such a long time.  I mean, if I bought a 50 year bond, I’d be in my 90s before I got my money back. Forget inflation, I’m just talking… Read More