No Risk Too Big As Bond Traders Plot Escape From Negative Yields

Ted

FYI: In the negative-yield vortex that is the European bond market, investors are discovering just what lengths they’re willing to go to generate returns.

Norway’s $870 billion sovereign wealth fund said this month that it added Nigeria and lifted its share of lower-rated company debt to the highest since at least 2006. Allianz SE, Europe’s biggest insurer, is shifting from German bunds to bulk up on mortgages. JPMorgan Asset Management is buying speculative-grade corporate debt to boost returns.
Regards,
Ted
http://www.bloomberg.com/news/articles/2015-03-22/no-risk-too-big-as-bond-traders-plot-escape-from-negative-yields

catch22

Whether one is a bond or equity person; or somewhere in between; as is probably the case with most here, and if one is/was a drinker of alcoholic type products; what continues related to the content of the write that @Ted has provided should cause the drinking person to lay down the glass or bottle; and if already having had too much of the stuff, to go to the bathroom or outside and upchuck what remains in the stomach.
Thanks for the article, Ted.

scott

LOL, yeah this ends well.

Old_Skeet

I am now happy to have only about 20% of my portfolio invested in fixed income securities which is comprised mostly of short duration type funds or multi sector income funds that have a broad investment spectrum. Just thinking now ... Junk seems to be "King of the Hill" which also includes bank loan funds.

heezsafe

And let us not forget another new and very special financial product: the contingent convertibles (a.k.a. CoCo bonds)! [get 'em while their hot, or get 'em when they're not?]

http://www.bloombergview.com/quicktake/contingent-convertible-bonds

Old_Joe

"what continues related to the content of the write that @Ted has provided should cause the drinking person to lay down the glass or bottle"

@catch22: I think that maybe you've got that exactly backwards.

Crash

I do note from the headline that the word "traders" is used, as opposed to investors. The dollar will continue to climb. Scott's got it right, I fear. All of this manipulation will not end well. I see that my credit union is offering a 15-month CD at 1.26%. I recall 15% CDs during the Carter years. My, oh my... But if you want an unsecured personal loan, they want to ding you for 13% for 2 years. It's 14% for 3 years, and 15% for 4 years. They want to pay depositors 1.26% to tie-up their money for 1.25 years, but take 13% on a loan. I don't want to even contemplate the available terms at the Financial Predator institutions like B of A and the others... Jeez.

00BY

But the mortgages with negative interest rates sure seem like a good deal. Bizarro world!

catch22

This is not directed towards @Old-Skeet; only a thought regarding the bond markets that he noted was about 20% of the portfolio being bonds towards the short duration or multi-sector areas.

I suspect this is a lower end percentage of bonds for some here (the younger ones in particular) and 70-80% may be a high percentage of bond holdings, depending upon one's risk/reward emotions and other factors that are important for; those near, at or in retirement.

IMO, regardless of one's feelings about bonds in general or holdings of bond types in a portfolio; one needs to watch the bond markets.

Figures vary; but the global bond market valuation is hugh. Reportedly in the range of $80 Trillion, when combining all bond types.

If I were invested at 100% equity today, assuming a perfect global mix; I would still continue to closely monitor bond markets of different flavors, no less than monitoring the equity investments that I hold.

Simply, bonds are global cash promises, yes?; be they local/state to you or a pipeline build issue in the remotest part of the planet.

So, if one has a lot of bond exposure; watch the pricing. If one has almost all equity exposure, also watch bond(s) pricing. The cost pricing of bonds for whatever reasons may affect one's equity holdings, too; towards the positive or negative.

Not that I am writing anything new, only an early morning 2 cents worth.

Regards,
Catch

Old_Skeet

Hi Catch22,

Good morning ... now on my second cup of joe.

I'll have to cut this short as I've got to get to my accountant for yearend tax reporting.

I was surprised to see the recent Xray on my portfolio scored me just over twenty percent in bonds. I have been studying my allocation funds to determine where former bond money is now being deployed. I have done very little myself with my bond funds ... if anything ... I have bought some in this area over the past months.

Seems though, the bond allocation is being trimmed in most of all my hybrid funds.
This is now strarting to lean my portfolio towards an agreesive allocation. I thought when I arrived at a twenty five percent allocation to bonds that was trimming towards the lean side ... now at twenty ... well ... I guess, I am on the super lean side.

And ... so it goes.

Old_skeet

scott

00BY said:

But the mortgages with negative interest rates sure seem like a good deal. Bizarro world!

And I'm sure whatever institution winds up with them will not want them on their books and will try to pass them off like a hot potato.

Ridiculous distortions like negative rate mortgages end with someone as the bagholder. It would not surprise me if it is ultimately the taxpayer via bailout.