Beware of Passive Indexing in Fixed Income

Posted on August 31, 2012 by Ken Taubes

It’s long been a concern of mine that many fixed income investors turn to indexed or index-like portfolios without knowing a principal risk: their exposure to government bonds at a time when debt levels are increasing and interest rates are at 60-year lows comes at the expense of owning other types of corporate bonds that might better serve their investment needs.

Often a core fixed income investment takes the form of an indexed or index-like portfolio based on the Barclays Capital U.S. Aggregate Index, one of the most widely used measures of the “broad” U.S. investment grade bond market. Over time, however, as government borrowing increases, the index’s proportion of government holdings increases in order to reflect the investable universe. We view this as a risk and one more reason why an active, value-based multi-sector approach may be a better way to invest. (more…)

Filed under: Fixed Income Market Insights, Ken Taubes, Macroeconomics | Leave a Comment »

ECB’s New Efforts to Defend the Euro

Posted on August 22, 2012 by Giordano Lombardo

The markets were disappointed when ECB president Mario Draghi announced that ECB bond purchases to bring down peripheral government bond yields would be strictly conditional on governments moving first to buy bonds through existing operational means, and indicated no broad based funding intiative. We recommend caution, particularly after seeing the diverse reaction from financial markets to the council’s decisions.

Now that the dust has settled somewhat, we believe that the “open-market operations” are appropriate and should allay the concerns of Germany’s central bank regarding the ECB overstepping its mandate.  (more…)

Filed under: Contributors, Europe, Giordano Lombardo, Macroeconomics, Political | Leave a Comment »

Markets Holding Up Despite Volatility

Posted on August 16, 2012 by Ken Taubes

Despite a steady stream of negative headlines and high volatility, markets are holding up pretty well. The broadest measure of the stock market, the S&P 500 Index, is up nearly 13% year-to-date through today, August 13, 2012. The NASDAQ is up almost 17%. High yield bonds are up almost 9.7% while investment grade corporate bonds have gained over 7%. Even Europe has managed 7.5%, as measured by the FTSE Eurofirst 300 Index in dollar terms.

Especially interesting are corporate bonds. They’re basically at their lows for the year in terms of both yields and spreads. In fact, after starting the year at around 725 basis points over Treasuries, high yield bond spreads are about 600 basis points over Treasuries today. Investment grade spreads started the year at about 257 basis points over Treasuries, and now are around 190. Investment grade bond yields are around 3%, High Yield bonds around 7%. (more…)

Filed under: Europe, Fixed Income Market Insights, Ken Taubes, Macroeconomics, Political | Leave a Comment »

ECB’s Message Bears No Contradiction – Read the Speech!

Posted on August 9, 2012 by Sam Wardwell

Comments by European Central Bank (ECB) President Mario Draghi caused a little bit of turmoil in the markets recently, when he first stated the ECB would do “whatever it takes” in a speech on July 26, then expressed the ECB’s reluctance to intervene in sovereign bond markets in his August 2 press conference. (more…)

Filed under: Europe, Macroeconomics, Sam Wardwell | Leave a Comment »

No Fed Action – Where it Leaves Us

Posted on August 2, 2012 by Paresh Upadhyaya

The Federal Reserve left the Fed funds target rate unchanged at 0.25%, in line with expectations. Contrary to expectations, the Fed kept its forward guidance unchanged by retaining the “keeping exceptionally low rates at least through late 2014” language. The Fed did not deliver a bond-buying “QE3”quantitative easing action as many had hoped it would. However, it clearly left the door open to QE3 with a strongly worded statement that it will “closely monitor incoming information on economic and financial developments and provide additional accommodation as needed.”

The Fed downgraded the economic outlook from its June statement in which it noted the economy “has been expanding moderately this year,” to saying “economic activity decelerated somewhat over the first half of the year” in yesterday’s statement.  So it’s a wait and see situation. (more…)

Filed under: Equity Market Insights, Fixed Income Market Insights, Macroeconomics, Paresh Upadhyaya | Leave a Comment »

You can’t play chess against a madman. So it goes with financial markets.

Posted on August 2, 2012 by Joe Kringdon

I’m feeling bullish on the markets. There, I said it. Despite the fact that (according to a recent Barron’s poll) 21% of financial advisors are not and, despite the fact that my formative years – with my bell-bottom pants and hankering for disco – were shaped by the depths of the 1970s bear market. (more…)

Filed under: Equity Market Insights, Mutual Fund Industry, Joe Kringdon | Leave a Comment »

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