Sectors: Bonds
Last month, ultra-long Japanese yields jumped after an auction of 40-year sovereign bonds met the weakest demand in almost a year, adding pressure on the government to reduce issuance.
Bond market volatility has eased over recent months, although it won’t have felt like it to traders of long-dated bonds.
This is the lower risk, lower return security that holds debt that sits one rung higher in the capital structure. Again, this is major bank debt that is floating in nature (rather than fixed). It’s returned 5.12% over the past 12-months, however, while subordinated bank debt will produce 5-6% returns, senior bonds are more like 4-5%.
This is a security we’ve held in the past (in the Income Portfolio) used to gain fixed income exposure without taking on what is called duration risk. This is a highly differentiated strategy where returns are not impacted by whether bond yields are high or low and regardless of whether interest rates are rising or falling. It’s very low volatility, but also low return.
This is an interesting strategy, run by an interesting guy – Chris Joye! The YLDX is a very active strategy that aims to generate higher income than other traditional fixed income investments by investing in a floating-rate portfolio of investment-grade bonds and hybrid securities issued predominantly by global banks and insurers, and enhancing the yields through the use of gearing (or leverage) – higher risk, higher (potential) return.
The US 30s retreated back under 5% following the moves from Japan, luring investors back to long-maturity bonds for the first time in weeks.
Bloomberg News reported on Tuesday that Japan’s finance ministry had asked market participants for their views on the appropriate amount of debt issuance. In other words, it’s looking to calm a market where relentless selling had pushed yields to record highs, leaving demand for fresh supply floundering.
The RBA was far more dovish than we expected last week. After starting off her role as RBA Governor from a very conservative standpoint, Michele Bullock appears comfortable with where inflation and the economy are headed.
Investors face yet another bumpy start to the trading week, although attention is focused on mounting concern over US debt, which is driving long-dated bond yields higher.
Sentiment is slowly becoming more cautious across bond markets, with the lowest rung of junk bonds flashing warnings that the US economy could soon face slower growth, higher inflation, and the possibility of a recession.
