Here are 4 reasons investors should be paying attention to bonds as a turbulent year nears the finish line

Fixed income markets have only recently recovered their recent rout, but more upside may be ahead, a strategist said.

The Fed’s likely done with rate hikes, which should eliminate the biggest headwind for bond investors.

The bond market turmoil that kicked off in October marked one of the worst sell-offs in history, but as 2023 nears its end, a market veteran says there’s reason for optimism in fixed income heading into the new year.

In a note last week, Lawrence Gillum, chief fixed income strategist for LPL Financial, pointed out that bonds have only recently turned positive for the year.

He laid out five reasons the current set-up bodes well for investors, starting with the end of the Federal Reserve’s rate-hiking campaign.

“The biggest headwind to the fixed income markets over the last few years has unequivocally been the Fed,” Gillum said. With disinflation continuing at a steady clip, he said the central bank is likely finished with its monetary policy tightening.

“[W]e think the Fed is likely done, which should eliminate the biggest headwind to fixed income markets,” he said.

Second, Gillum pointed to the asymmetric risk-return profile for bonds, largely thanks to the higher “yield cushion” that can offset higher interest rates.

“The higher income component serves as a ‘hurdle rate,’ or a yield cushion, that will need to be eclipsed before further losses are realized,” he said. “As such, these higher hurdle rates may decrease the probability of losses due to an increase in interest rates while at the same time these higher starting yields increase the probability of annual gains.”

Third, the strategist said bond investors could see equity-like returns — without equity-like risks.

LPL Financial holds a base case for the 10-year Treasury to hover at 4.25%-4.75%, but it maintains that a sustained drop in yields could lead to high single-digit or low double-digit returns in the next 12 months for fixed income investments.

“[I]f the economy slows and the Fed cuts rates more than we expect next year, these high-quality fixed income sectors could generate 12%–13% type returns (no guarantees of course),” Gillum wrote in the note.

And fourth, the present fixed-income landscape will open the door for income-oriented investors to generate income again, in his view. Right now, he said bond investors can build a high-quality portfolio of US Treasurys, AAA-rated mortgage-backed securities, and short-maturity investment-grade corporates.

“Investors don’t have to ‘reach for yield’ anymore by taking on a lot of risk to meet their income needs,” Gillum said. “And for those investors concerned about still higher yields, laddered portfolios and individual bonds held to maturity are ways to take advantage of these higher yields.”

Gillum writes that as markets transition into a more normal rate environment, bonds investors are in a good place as 2023 winds down.

“That’s not to say there won’t be volatility, there will be, but we think the risk/reward for fixed income is as attractive as it’s been in some time, for which we are thankful.”

Gary Shilling predicted stocks would keep crashing in March 2020, but he dismissed inflation fears a year later, and a recession hasn’t materialized.

Big oil and gas companies in China and elsewhere are using low-quality carbon offsets to “greenwash” their imports of natural gas while failing to make strong emissions cutting commitments, environment group Greenpeace said on Monday. Firms like PetroChina and CNOOC Gas and Power have signed long-term contracts with Shell to buy “carbon neutral” liquefied natural gas (LNG), which uses “forest offsets” to balance out carbon emissions.

US banks are considering credit risk transfer transactions after a March crisis in the sector and as regulators look to increase capital they have to hold.

The ‘Magnificent Seven’ have rallied 107% this year but it’s the smaller tech shares that are poised for a large move. Here’s why.

Earnings reports from CrowdStrike, Snowflake, Okta, Dollar Tree, Salesforce, Ulta Beauty, and Kroger. Plus, October core PCE and November Manufacturing PMI.

Cash conditions in China’s money market showed signs of tightness on Monday, as market participants grew cautious about month-end demand and a recent liquidity squeeze remained fresh in memory. Despite fresh liquidity injections by the central bank to calm the market, traders and analysts said borrowing costs for the funds that could help financial institutions, especially non-banks, to tide over the critical month-end period remained high. The price of the benchmark seven-day repos traded in the interbank market, hit a high of 2.8% on Monday, the highest level since Oct. 31.

Global markets took a sharp intake of breath on Monday after seeing Wall St’s ‘fear gauge’ hit its lowest since before the pandemic hit late last week and as China major stock indexes continue to wane. Monday’s stock opening looked to be in the red, however, with Asia and European bourses falling back.

Oil prices slipped on Monday, with Brent falling toward $80 a barrel, as investors waited for an OPEC+ meeting later this week for an agreement expected to curb supplies into 2024. Brent crude futures fell 42 cents, or 0.5%, to $80.16 a barrel by 0901 GMT, while U.S. West Texas Intermediate crude futures were at $75.05 a barrel, down 49 cents, or 0.7%. Both contracts rose slightly last week, their first weekly gain in five, underpinned by expectations that Saudi Arabia and Russia could roll over voluntary supply cuts into early 2024 and OPEC+ might discuss plans to reduce output further.

“If these funds (and others like them to-come) collect material AUM, it could exacerbate the tail risks 0DTE options pose,” JPMorgan said.

I’m afraid of the stock market. With my first investment, I lost 60% of my money. So I’m strictly into bonds. With interest rates low, what’s your advice? Should I stay or try something else? -Jerold It’s reasonable to be … Continue reading → The post Ask an Advisor: ‘I’m Strictly Into Bonds’ and Afraid of the Stock Market. Is This a Strategy I Should Stick With? appeared first on SmartAsset Blog.

Consumers are shifting away from store-branded credit cards, which have been lucrative for retailers.

Deutsche Bank analysts expect the index to end 2024 at 5,100 points. The bank forecast earnings for companies in the benchmark index to rise 10% after factoring in a “mild short” recession and a 19% increase if U.S. gross domestic product grows by 2%. Deutsche Bank’s 2024-end S&P 500 target is 8.5% higher than the 4,700 median forecast of 33 strategists polled by Reuters.

The central bank governors of Poland and Hungary are caught up in noisy disputes with opponents over their rate-setting policy, raising new hazards for investors willing to brave central Europe’s bitterly polarised politics. In Poland, governor Adam Glapinski stands accused of having tried to boost the economy with rate cuts to help his longtime allies in the Law and Justice (PiS) party secure a new term in last month’s elections – unsuccessfully, as it turned out. In Hungary, central bank governor Gyorgy Matolcsy is under pressure from Viktor Orban’s government to cut rates further ahead of local and European Parliament elections next year.



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