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Junk still looks good. Also leveraged loans, bank loans. Stay very short on duration.
Ironically these higher risk bonds did much better than the safer investment grade bonds. As long as labor market stays healthy one can expect this trend continues in 2025, until inflation ticks upward. What would Powell do when fewer cuts are anticipated in 2025 ? Or will he kicks the can down the road for the next FED ?
@crash, I missed this episode on Friday as my TV forgot to record, I assumed the show was on a break, and I missed your post on Friday. If either of you remember the highlights of the episode,, pl post.
@BaluBalu ok, I'll re-watch and attempt to summarize. My main takeaway was from Earl Davis of BMO, as referenced above. I don't buy Treasuries directly. Input from here at MFO some time ago warns that the gummint's website is awkward and clunky. I own Treasuries through my funds. But I see that my junk is still doing better than IG. The Fed's own stance has changed. Fewer rate cuts are in the cards. My own (I.G.) WCPNX has been underperforming. After enough time passes to avoid the penalty for early trade-out, I'm switching it......
@Crash, please do not re-watch for my sake. 5 day old macro is as actionable as a 5 day old fish. Besides, next Friday is around the corner and we will get a new episode.
I forgot, are you entirely at Schwab now? Their fixed income desk is at 800-626-4600. The reps try to help. Their website is a bit clunky for bond purchases but doable. Also, I do not enjoy their timing of crediting of the account upon maturity of bonds / CDs - I think they are mostly delayed relative to Fido and the fact that you have to buy in - sell out of MM creates additional transactional / investment friction. So, i mostly buy them at Fido but Schwab has some low minimum funds to access.
Re: 03 Jan, '25: Expecting elevated volatility, uncertainty. The 2-10 year spread is at highest in over 2 years. Due to fiscal concerns. Davis (BMO) likes relatively attractive current yields on both Treasuries AND corporates. He's adding duration.
Ed Al-Hussainy (Columbia Threadneedle) is concerned about policy uncertainty, most. Political and fiscal policy. "Underneath," there is also the Fed's interest rate adjustment stance.
Leslie Falconio (UBS Global Wealth Management) sees the monetary side has been totally recalibrated. Her firm expects only two interest rate cuts in '25. (June and Sept.)
Al-Hussainy: watch to see what happens with tariffs. Falconio: Fed will most likely wind-down QT in 1st or 2nd Q.
Duration, Leslie? Yes, more duration now, but only out to the belly, around 5 years. When UST reach 4.75 at 10-years, they'll add further out the curve.
Al-Hussainy: duration is becoming a good hedge vs. risk assets, yes. Long end, out to the end of the year, is still quite "scary." *********** DELUGE of I.G. bond issuance expected. Already, $15B of issuance from Credit Agricole, GM and Ford. -A poll shows $200B of junk issuance in '25 is expected. (Expected to exceed last year's record.)
JoAnne Bianco (Bondbloxx:) Still see opportunity in credit, especially junk. Akila Grewal (Apollo Global) Private Credit will benefit in the impending higher-for-longer rate environment.
Sinjin Bowron (Beach Point Capital) Currently deploying money across the quality spectrum--- including "distressed opportunities." Distressed HY in '24 was a big driver of returns. But FR outperformed fixed income. Going forward, more bets into FR makes a lotta sense.
(Akila: ugh! Her manner of delivery is off-putting. Sounds just rushed and canned.) Anyhow: Apollo is still focused on higher quality, First Lien stuff.
Bowron: Coming into '25 there are both solid credit fundamentals and very tight valuations. And wider spreads should not come as a surprise, simply given political uncertainty into '25. Nevertheless, credit quality remains robust.
@Crash, please do not re-watch for my sake. 5 day old macro is as actionable as a 5 day old fish. Besides, next Friday is around the corner and we will get a new episode.
I forgot, are you entirely at Schwab now? Their fixed income desk is at 800-626-4600. The reps try to help. Their website is a bit clunky for bond purchases but doable. Also, I do not enjoy their timing of crediting of the account upon maturity of bonds / CDs - I think they are mostly delayed relative to Fido and the fact that you have to buy in - sell out of MM creates additional transactional / investment friction. So, i mostly buy them at Fido but Schwab has some low minimum funds to access.
Hello. The last individual bond I recall personally buying was in 2003. It was a foreign 10-year "zero." I did well. For political reasons, I refuse to go back to the same source. And given my home and extended family situation, individual bonds and CDs don't work for me. Schwab may have things arranged to be pain-in-the-ass, but I just never use that function, anyhow. Yes, for simplicity, I'm all-in with Chuck. Like you, I don't like to have to sell-out of MM in order to buy stocks, stock funds or bond funds. But I live with it.
The political situation coming up is going to be "interesting," to say the least! It will surely affect markets. More volatility is surely to be expected.
I offered some highlights in a previous attempt to post, but my way-too-sensitive stoopid Apple idiot computer evaporated the whole thing when it thought I was telling it to revert to the previous page. Mountains of skunk dooky.
CEOs and CFOs and CIOs are all "optimistic." Uh-oh. Outlook on rates is muddy.
Duration looks better-priced than in the recent past. FED and the bond market will be range-bound until Orange policies are implemented or not, or partially. Wait and see. US bonds are a good bet right now. ...June and Sept. rate cuts expected. (Really?)
Don't worry about the FED's independence... Record-setting debt sales, particularly in Europe. UK, France & Spain all breaking their own national records.
$20B sale of 10-year TIPS drew highest yield in a decade. 2.243%. New I.G. debt: G/S, RBC, PNC, BMO, Blackstone.
"Riskiest junk heads for 2nd weekly gain." (Anecdotally, I can share that my junk is range-bound, still producing attractive yields over 7%. TUHYX and PRCPX. But I.G. WCPNX is not terrible, but not really keeping up.) Spreads are tight. The place to be is in or near the middle of the curve. "We like HY." ... The securitized market is attractive. As for HY, aim for higher-quality junk.
Office Real Estate? A tale of two cities: Century City is thriving, downtown L.A. is suffering. Gotta be selective. Ya can't just throw money and get exposure to the general sector.
...And what about a current favorite trade? AAA-CLOs. And a diversified basket of credit.
Uncertainty. Hedging bets, loathe to make predictions. Lowest level of bond volatility in years.
Collin (sic) Martin, Schwab Fixed Income. Amaury D'Orsay, Amundi Fixed Income. No cuts expected anytime soon. Stand pat at least for the first half of the year. Perhaps more volatility from the long end of the curve, and in the Credit Markets.
D'Orsay lately could see the 10-year maybe at 5%. Still realistic? No, maybe 4.8%. And more likely, a bit below that.
Martin: we could get to 5% without even factoring in the Trump policies. Even with just two cuts later in the year, 5% is realistic, given the state of the labor market and everything else. The Big Picture dynamics are present.
(On-screen: 10 year T is at 4.52%.)
Sonali to D'Orsay: how do tariffs fit into your estimation? Muddy. Focus on the data. That's the thing to do, these days. Martin: "We expect the 10-Year to trade in a wide range."
To D'Orsay: "What is your bigeest conviction trade right now?" InflationBonds. ******************* I.G. new monthly credit bond issuance = only $3B short of the record. (And this is the final day of January.) ...RECORD set in Leveraged Loan issuance. $202B. Beats the previous record from just last month.
Maurenn O'Connor, Wells Fargo. We will forgive her for being connected to the sewer called Wells Fargo. And Meghan Graper, Barclays.
...O'Connor: rolling over stuff that is maturing is a big chunk of what's responsible for new issuance, currently.
Market is priced for perfection. Ultra-tight yield spreads. Longer-term risk is inflation. ...Sudden conclusion, this time.
Sticky inflation, FED will not be cutting rates. Maybe 10-year at 5% this year...Powell: "we are close, but not there," with regard to inflation.
Through the week, there was a 0.20% range being traded. That's BIG in the bond market.
Big sovereign deals during the past week: UK, France. Near record orders: over 115B euros.
USA Treasury Auction: 3-yr: 4.3% 10 yr: 4.632% (highest for new issuance since 2007.) 30 yr: 4.748% (Schwab's SWVXX MM right now: 4.18%)
Anastasia Amoroso: favorite bond market sector: hmmmmmmm. Spreads are tight, offered rates are range-bound. So, she likes private credit.
Leveraged loan vs. private credit discussion with Christina Minnis, from Goldman. Both markets are "growing, robust and strong." and there is lots of dry powder still on the sidelines. Rates will stay where they are for longer. Biggest opportunity is "probably in the the private investment grade space." the prospect of rising RATES and GEOPOLITICAL considerations are the biggest looming risks. It would be an untoward thing if the FED felt it necessary to bump-up rates.
Comments
I forgot, are you entirely at Schwab now? Their fixed income desk is at 800-626-4600. The reps try to help. Their website is a bit clunky for bond purchases but doable. Also, I do not enjoy their timing of crediting of the account upon maturity of bonds / CDs - I think they are mostly delayed relative to Fido and the fact that you have to buy in - sell out of MM creates additional transactional / investment friction. So, i mostly buy them at Fido but Schwab has some low minimum funds to access.
Expecting elevated volatility, uncertainty. The 2-10 year spread is at highest in over 2 years. Due to fiscal concerns. Davis (BMO) likes relatively attractive current yields on both Treasuries AND corporates. He's adding duration.
Ed Al-Hussainy (Columbia Threadneedle) is concerned about policy uncertainty, most. Political and fiscal policy. "Underneath," there is also the Fed's interest rate adjustment stance.
Leslie Falconio (UBS Global Wealth Management) sees the monetary side has been totally recalibrated. Her firm expects only two interest rate cuts in '25. (June and Sept.)
Al-Hussainy: watch to see what happens with tariffs.
Falconio: Fed will most likely wind-down QT in 1st or 2nd Q.
Duration, Leslie? Yes, more duration now, but only out to the belly, around 5 years. When UST reach 4.75 at 10-years, they'll add further out the curve.
Al-Hussainy: duration is becoming a good hedge vs. risk assets, yes. Long end, out to the end of the year, is still quite "scary."
***********
DELUGE of I.G. bond issuance expected.
Already, $15B of issuance from Credit Agricole, GM and Ford.
-A poll shows $200B of junk issuance in '25 is expected. (Expected to exceed last year's record.)
JoAnne Bianco (Bondbloxx:) Still see opportunity in credit, especially junk.
Akila Grewal (Apollo Global) Private Credit will benefit in the impending higher-for-longer rate environment.
Sinjin Bowron (Beach Point Capital) Currently deploying money across the quality spectrum--- including "distressed opportunities." Distressed HY in '24 was a big driver of returns. But FR outperformed fixed income. Going forward, more bets into FR makes a lotta sense.
(Akila: ugh! Her manner of delivery is off-putting. Sounds just rushed and canned.)
Anyhow: Apollo is still focused on higher quality, First Lien stuff.
Bowron: Coming into '25 there are both solid credit fundamentals and very tight valuations. And wider spreads should not come as a surprise, simply given political uncertainty into '25. Nevertheless, credit quality remains robust.
The political situation coming up is going to be "interesting," to say the least! It will surely affect markets. More volatility is surely to be expected.
https://www.bloomberg.com/news/videos/2025-01-10/bloomberg-real-yield-01-10-2025-video
I offered some highlights in a previous attempt to post, but my way-too-sensitive stoopid Apple idiot computer evaporated the whole thing when it thought I was telling it to revert to the previous page. Mountains of skunk dooky.
https://www.bloomberg.com/news/videos/2025-01-24/bloomberg-real-yield-01-24-2025-video
CEOs and CFOs and CIOs are all "optimistic." Uh-oh.
Outlook on rates is muddy.
Duration looks better-priced than in the recent past. FED and the bond market will be range-bound until Orange policies are implemented or not, or partially. Wait and see. US bonds are a good bet right now. ...June and Sept. rate cuts expected. (Really?)
Don't worry about the FED's independence...
Record-setting debt sales, particularly in Europe. UK, France & Spain all breaking their own national records.
$20B sale of 10-year TIPS drew highest yield in a decade. 2.243%.
New I.G. debt: G/S, RBC, PNC, BMO, Blackstone.
"Riskiest junk heads for 2nd weekly gain."
(Anecdotally, I can share that my junk is range-bound, still producing attractive yields over 7%. TUHYX and PRCPX. But I.G. WCPNX is not terrible, but not really keeping up.)
Spreads are tight. The place to be is in or near the middle of the curve. "We like HY." ...
The securitized market is attractive. As for HY, aim for higher-quality junk.
Office Real Estate? A tale of two cities: Century City is thriving, downtown L.A. is suffering. Gotta be selective. Ya can't just throw money and get exposure to the general sector.
...And what about a current favorite trade? AAA-CLOs. And a diversified basket of credit.
Uncertainty. Hedging bets, loathe to make predictions.
Lowest level of bond volatility in years.
Collin (sic) Martin, Schwab Fixed Income. Amaury D'Orsay, Amundi Fixed Income.
No cuts expected anytime soon. Stand pat at least for the first half of the year. Perhaps more volatility from the long end of the curve, and in the Credit Markets.
D'Orsay lately could see the 10-year maybe at 5%. Still realistic? No, maybe 4.8%. And more likely, a bit below that.
Martin: we could get to 5% without even factoring in the Trump policies. Even with just two cuts later in the year, 5% is realistic, given the state of the labor market and everything else. The Big Picture dynamics are present.
(On-screen: 10 year T is at 4.52%.)
Sonali to D'Orsay: how do tariffs fit into your estimation? Muddy. Focus on the data. That's the thing to do, these days. Martin: "We expect the 10-Year to trade in a wide range."
To D'Orsay: "What is your bigeest conviction trade right now?" Inflation Bonds.
*******************
I.G. new monthly credit bond issuance = only $3B short of the record. (And this is the final day of January.) ...RECORD set in Leveraged Loan issuance. $202B. Beats the previous record from just last month.
Maurenn O'Connor, Wells Fargo. We will forgive her for being connected to the sewer called Wells Fargo. And Meghan Graper, Barclays.
...O'Connor: rolling over stuff that is maturing is a big chunk of what's responsible for new issuance, currently.
Market is priced for perfection. Ultra-tight yield spreads. Longer-term risk is inflation. ...Sudden conclusion, this time.
https://www.bloomberg.com/news/videos/2025-02-14/bloomberg-real-yield-02-14-2025-video
Sticky inflation, FED will not be cutting rates. Maybe 10-year at 5% this year...Powell: "we are close, but not there," with regard to inflation.
Through the week, there was a 0.20% range being traded. That's BIG in the bond market.
Big sovereign deals during the past week: UK, France. Near record orders: over 115B euros.
USA Treasury Auction:
3-yr: 4.3%
10 yr: 4.632% (highest for new issuance since 2007.)
30 yr: 4.748%
(Schwab's SWVXX MM right now: 4.18%)
Anastasia Amoroso: favorite bond market sector: hmmmmmmm. Spreads are tight, offered rates are range-bound. So, she likes private credit.
Leveraged loan vs. private credit discussion with Christina Minnis, from Goldman. Both markets are "growing, robust and strong." and there is lots of dry powder still on the sidelines. Rates will stay where they are for longer. Biggest opportunity is "probably in the the private investment grade space." the prospect of rising RATES and GEOPOLITICAL considerations are the biggest looming risks. It would be an untoward thing if the FED felt it necessary to bump-up rates.