As we’ve had conversations with clients, heard from consultants, and read in the press, yield-starved investors are turning to riskier asset classes and alternative investments to add income to their portfolios. But what if it didn’t have to be that complicated? What is often overlooked is the possibility to earn a far greater return than the quoted yield on any given bond, even in the current rate environment. In fact, it is possible to earn a return of more than two times the quoted yield if rates stay right where they are…and all we need to do is rely on the passage of time. It’s all possible because of two words: roll return.
Posts tagged ‘bonds’
Even after a bumper year of investor inflows, high yield bank loans underperformed high yield bonds in 2013. Flows into bank loans, a segment of the overall high yield fixed income market, were north of US$62 billion, and yet the total returns in the high yield bond market were better. Why didn’t all that love from investors translate into better returns? Read more
As we enter 2014 and the Federal Reserve begins to taper its bond-buying program, what does Principal Global Fixed Income expect from markets in 2014, and what are our recommendations? This blog post represents a compilation of our key themes and outlooks, and our recommendations for 2014. Overall, our thoughts for 2014 are Expand Credit, Shorten Duration, and Look to Europe.
- Theme #1 – Credit spreads expected to tighten in 2014.
- There’s plenty of runway for fixed income in 2014, thanks to quantitative easing (QE) and a low default rate. One byproduct of the last several years of QE has been increased refinancings. This is a positive fundamental for fixed income and helps to keep defaults well below their long-run averages while keeping interest-coverage levels relatively high. Read more
There’s been a lot of rumbling in the news lately about the bond market.
With interest rates recently bouncing off of historic lows, the economic community is in general consensus that the end of a more than 30-year bull market for bonds is near.
While no one can predict the future of any investment option, there are signs of a sea change for the bond market.
Welcome to the new Fixed Income segment of The Principal Blog! The video below gives a quick look at what to expect.
Last week, I introduced the idea of ten concrete concepts that our high yield research team uses to help summarize the many interacting factors and variables that make high yield a unique and challenging asset class. In my previous blog post, I covered the first five: cash flow, capital, cushion, cyclicality, and competition. To finish up this thought, here are the last five:
- Cost Structure – A company can’t provide products and services to customers without incurring some costs. Within a particular sector, many companies face similar cost pressures, but not always. For instance, there is a currently great disparity between the cost of natural gas in Europe (high prices) and in the United States (low). This has created a tremendous opportunity for companies in the chemical sector that use natural gas as an input to their production process.
- Read more
There have been many classic debates in popular culture over the years. In technology we’ve had PCs versus Mac, and then Droid versus iPhone. In beverages, we’ve had Coke versus Pepsi, while in entertainment we’ve suffered through Team Edward versus Team Jacob. And baseball will always have the Red Sox versus the Yankees. Even in investments, we have had our own ongoing version of a great debate, which has been simmering for a few years, yet this one involves asset allocation and is much more meaningful and significant: will there be a “great rotation” out of corporate bonds into equities? Read more