econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 14 December 2016

Don't Wait To Lock In Bond Yields

by Richard Stavros

Investing Daily Article of the Week

As yields on government and corporate bonds start to rise, I'm reminded of the Silicon Valley venture capitalist saying, known as Kleiner's Law of Appetizers: "The time to eat the hors d'oeuvres is when they're being passed round." In other words, seize cash as soon as it's offered.

That's valuable advice today for income investors. Don't take higher yields for granted because there's no guarantee they'll continue going up into next year and beyond.

The increase in bond yields (and decline in bond prices; they move opposite of each other) has been based on the market's belief that the incoming Trump administration's stimulus policies of tax cuts, deregulation and infrastructure spending will create growth and push up inflation, which in turn leads to increased yields.

But the stimulus plans are still largely a mystery, and their impact won't be felt until 2018. So there's no way to know whether such policies will spur growth. And adding to the ambiguity is past stimulus efforts haven't spurred business investment and spending.

In fact, corporate investment as a proportion of GDP has continued to decline. Said Martin Sorrell, the CEO of WPP plc, a British multinational:

"Businesses are choosing to return funds to shareholders rather than invest them back into their operations. Yet there is no shortage of cash to invest. Companies are estimated to be sitting on more than $7 trillion of cash worldwide - a form of corporate inertia that will continue into 2017 and beyond."

Sorrell pins the reason corporations are not spending on "deep scars on the collective corporate psyche" from the 2008 financial crisis which he believes has "fundamentally changed the attitude to risk of an entire generation of executives." He doubts Trump's policies will heal the scars.

And if growth forecasts are wrong in a year, we know that rates will be headed lower. According to a Wall Street Journal story, a firm called Macroeconomic Advisers developed a financial model that looked at what happens if Treasury yields rise further, not because of an improving economy but because investors believe, based on an incorrect growth forecast or for whatever reason, that the Federal Reserve will raise rates more aggressively.

The analysis concluded that if growth doesn't pick up and current trends persist, and if 10-year Treasury yields rise by another half-a-percentage point, "then the simulation predicts that annual economic growth by the first quarter of 2018 would fall to just 0.9%," a startling result that would likely force the Federal Reserve to cut rates again.

So, don't count on growth and higher rates. And next year if you can buy safe income investments paying higher rates, do it. If growth does return and inflation moves upward, there will be plenty of time to re-position your portfolio.

If you need some guidance on bonds to buy, we'll be giving some names in Personal Finance. We have started studying which fixed income investments have more attractive yields due to the recent sell off in bonds, and which companies have started to issue bonds with higher coupons.

In the coming months, we will be developing a bond portfolio to complement our equity income portfolio and advise investors on new fixed income investment strategies and opportunities.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical Investing Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



You can also comment using Facebook directly using he comment block below.





Econintersect Investing


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
Minsky’s Theory of Asset Prices: Why Minsky Was NOT a Neo-Monetarist
Finance and Growth: The Direction of Causality
News Blog
Early Headlines: Asia Stocks Mixed, Oil Up, Dollar Down, China GDP On Target, GOP Govs Defend Medicaid Expans., Trump Wants To Cut Fed. Spending By $ 1 Trn, Trump's Troubling Foreign Deals And More
The Fake News That Sealed The Fate Of Antony And Cleopatra
The Jobs With The Biggest Cash Bonuses
Astronomers Spot Strange, Bow-like Structure In Venus' Atmosphere
Raising A Child Is An Extremely Expensive Undertaking
The World's Staggering Wealth Divide
What We Read Today 19 January 2017
OK Go - The One Moment - Official Video
January 2017 Philly Fed Manufacturing Survey Significantly Improves and Remains In Expansion.
December 2016 Residential Building Sector Mixed
14 January 2017 Initial Unemployment Claims Rolling Average Improvement Continues
Stock Market Bull Faces Important Test
Infographic Of The Day: Movies That Struck Oil
Investing Blog
How To Invest In Oil For Long-term Investors
Investing.com Technical Summary 19 January 2017
Opinion Blog
What Is The Natural Interest Rate - And What If We Go Above It?
A New Deal With Capitalism Requires A Revolution In Politics And Markets
Precious Metals Blog
Four Catalysts Drive Gold And Silver For 2017
Live Markets
19Jan2017 Market Close: Wall Street Closes Down Fractionally On Lackluster Investor Participation Ahead Of Tomorrow's Presidential Inauguration, George Soros Said That Global Markets Will Falter
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government





























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved