Fixed Income Archives - Page 16 of 16

November 22, 2011

RAFI ETF Investing: Q&A With Rob Arnott | ETF Database

When you think about capitalization weighting in stocks the drawbacks are fairly evident. When you talk about cap weighting in bonds, the drawbacks are flagrantly obvious.

With cap weighting, consider that Australia has three times the GDP of Greece, and Greece has three times the debt burden of Australia. Why should we want to own three times as much in Greek debt as Australian debt? In fact, Australia’s ability to service debt is at least three times that of Greece, and so wouldn’t it make more sense to have an index for bonds that weights countries’ bond debt in accordance with GDP and other measures of the economic footprint of a country?

via RAFI ETF Investing: Q&A With Rob Arnott | ETF Database.

November 22, 2011

Getting The Most Out Of Your Bond ETFs

Market cap weighting has long been the traditional strategy for not only ETFs, but almost all basket funds. But as the ETF industry expanded, many have realized the benefits of alternative weighting strategies as a number of them outdid their cap-weighted counterparts. More recently these strategies have waded into fixed income territory and yielded several interesting bond ETF products:

SPDR Barclays Capital Issuer Scored Corporate Bond ETF (CBND) – This ETF uses three fundamental factors to determine the weight given to each debt it holds: return on assets, interest coverage, and current ratio.
Fundamental High Yield Corporate Bond Portfolio (PHB) – This product uses the RAFI approach to selecting its holdings using four factors: book value of assets, gross sales, gross dividends, and cash flow–each based on five-year averages. Note that PHB is classified in the high yield or “junk bond” category.
Fundamental Investment Grade Corporate Bond (PFIG) – PFIG also uses the RAFI weighting methodology, but instead applies it to investment grade corporate bonds.

via Getting The Most Out Of Your Bond ETFs.

November 3, 2011

Falling Treasury yields warn of money flowing out of stocks

10-Year Treasury Yields are testing medium-term support at 2.00 percent. Failure would indicate another primary decline — and bad news for stocks.

10-Year Treasury Yields

November 1, 2011

Ex-Product Sketch | The Big Picture

There have been many cries to regulate or ban the existence of Sovereign CDS, both from the sovereigns that felt their nations under attack, and by the masses who see them as one of Satan’s investment bank tools designed to steal from the poor………

But there is a viable alternative. TMM would like to introduce their readers to the humble Bond Future. That long-standing, well-understood derivative that has provided liquidity, transparency and price discovery to bond markets in many countries for 40 years. Bond futures with deliverable bond baskets allow basis trading, speculation and hedging, without the idiosyncrasies of CDS contracts. But of course, futures markets aren’t that profitable for banks… well, you reap what you sow, right?

via Ex-Product Sketch | The Big Picture.

November 1, 2011

Say What? In 30-Year Race, Bonds Beat Stocks – Bloomberg

Long-term government bonds have gained 11.5 percent a year on average over the past three decades, beating the 10.8 percent increase in the S&P 500, said Jim Bianco, president of Bianco Research in Chicago.

The combination of a core U.S. inflation rate that has averaged 1.5 percent this year, the Federal Reserve’s decision to keep its target interest rate for overnight loans between banks near zero through 2013, slower economic growth and the highest savings rate since the global credit crisis have made bonds the best assets to own this year.

via Say What? In 30-Year Race, Bonds Beat Stocks – Bloomberg.

Does this mean we should all rush out and buy 10-year Treasury Notes yielding less than 2.20 percent? I think not. The potential for further capital gains from lower yields is far outweighed by the risk of capital losses from future rate rises. And there are plenty of low-to-medium risk alternatives that will perform better than 2.20 percent.

October 4, 2011

Guest Post: Credit Spreads In The New Normal | ZeroHedge

A banking crisis implies easy money, ZIRP, various types of balance sheet expansion, and lower credit quality on central bank balance sheets. This acts to suppress credit risk, compressing spreads. This creates “artificiality” in credit market insofar as a central bank is not a natural buyer of higher risk securities. There will come a time when risk is moved off central books, and markets will have to learn how to re-price risk with no government support.

via Guest Post: Credit Spreads In The New Normal | ZeroHedge.

September 3, 2011

The Problem With Your Bond Fund – SmartMoney.com

Twenty years ago the average bond fund cost $100 in sales charges and yearly expenses for each $10,000 invested, according to the Investment Company Institute. At the time, $10,000 was enough to produce a yearly income of $825 in 10-year Treasury bonds and $1,050 in corporate bonds rates Baa (“moderate credit risk”) by Moody’s.

The good news: last year, bond fund fees averaged $70 per $10,000 invested. The bad: $10,000 put in the same Treasurys or corporate bonds now provides only $220 or $540 in yearly income, respectively.

via The Problem With Your Bond Fund – SmartMoney.com.