Financial bonds – Purple Ribbon Project http://purpleribbonproject.com/ Wed, 21 Sep 2022 18:00:32 +0000 en-US hourly 1 https://wordpress.org/?v=5.9.3 https://purpleribbonproject.com/wp-content/uploads/2021/10/icon-12.png Financial bonds – Purple Ribbon Project http://purpleribbonproject.com/ 32 32 What the inverted yield curve means for your portfolio https://purpleribbonproject.com/what-the-inverted-yield-curve-means-for-your-portfolio/ Wed, 21 Sep 2022 18:00:32 +0000 https://purpleribbonproject.com/what-the-inverted-yield-curve-means-for-your-portfolio/ Walrus Pictures | E+ | Getty Images As investors digest another 0.75 percentage point interest rate hike by the Federal Reserve, government bonds could signal distress in the markets. Ahead of the Fed news, the policy-sensitive 2-year Treasury yield climbed to 4.006% on Wednesday, the highest level since October 2007, and the benchmark 10-year Treasury […]]]>

Walrus Pictures | E+ | Getty Images

As investors digest another 0.75 percentage point interest rate hike by the Federal Reserve, government bonds could signal distress in the markets.

Ahead of the Fed news, the policy-sensitive 2-year Treasury yield climbed to 4.006% on Wednesday, the highest level since October 2007, and the benchmark 10-year Treasury rose to 3.561% after hitting an 11-year high this week.

When short-term government bonds have higher yields than long-term bonds, known as yield curve inversions, this is seen as a harbinger of a future recession. And the much-watched spread between 2-year and 10-year Treasuries continues to reverse.

Learn more about personal finance:
Here’s how high inflation can affect your tax bracket
What another major interest rate hike from the Fed means for you
Inflation Is Driving Some Millennials and Gen Z to Close Investment Accounts

“Higher bond yields are bad news for the stock market and its investors,” said certified financial planner Paul Winter, owner of Five Seasons Financial Planning in Salt Lake City.

Higher bond yields create more competition for funds that might otherwise enter the stock market, Winter said, and with higher Treasury yields used in the calculation to value stocks, analysts could reduce cash flow. expected future.

Additionally, it may be less attractive for companies to issue bonds for share buybacks, a way for profitable companies to return cash to shareholders, Winter said.

How Federal Reserve rate hikes affect bond yields

Market interest rates and bond prices generally move in opposite directions, which means that higher rates cause bond values ​​to fall. There is also an inverse relationship between bond prices and yields, which rise as bond values ​​fall.

The Fed’s rate hikes helped push bond yields up somewhat, Winter said, with the impact varying across the Treasury yield curve.

“The further out of the yield curve you go and the lower credit quality you go, the less Fed rate hikes affect interest rates,” he said.

This is one of the main reasons for the inverted yield curve this year, with 2-year yields rising more dramatically than 10- or 30-year yields, he said.

Consider these smart moves for your wallet

Now is a good time to review your portfolio diversification to see if any changes are needed, such as realigning assets to match your risk tolerance, said Jon Ulin, CFP and CEO of Ulin & Co. Wealth Management. in Boca Raton, Florida.

On the bond side, advisors monitor what’s called duration, measuring how sensitive bonds are to changes in interest rates. Expressed in years, the term takes into account the coupon, the term to maturity and the yield paid over the entire term.

Above all, investors need to remain disciplined and patient, as always, but especially if they believe rates will continue to rise.

Paul Winter

Owner of Five Seasons Financial Planning

While clients favor higher bond yields, Ulin suggests keeping durations short and minimizing exposure to long bonds as rates rise. “Duration risk can eat away at your savings over the next year, regardless of sector or credit quality,” he said.

Winter suggests steering stock allocations towards “value and quality”, typically trading for less than asset value, compared to growth stocks, which can be expected to offer above-average returns. Often, value investors look for undervalued companies that are expected to appreciate over time.

“Above all, investors need to remain disciplined and patient, as always, but especially if they believe rates will continue to rise,” he added.

]]>
What’s the best way for you to start investing? https://purpleribbonproject.com/whats-the-best-way-for-you-to-start-investing/ Mon, 19 Sep 2022 15:15:00 +0000 https://purpleribbonproject.com/whats-the-best-way-for-you-to-start-investing/ So you want to start investing. But when you’re bombarded with a multitude of investment platforms, it can be difficult to determine which type is right for you. Do not worry. I’ll help you determine which approach to take based on your financial situation, investment goals and risk tolerance. But above all. Make sure you’re […]]]>

So you want to start investing. But when you’re bombarded with a multitude of investment platforms, it can be difficult to determine which type is right for you.

Do not worry. I’ll help you determine which approach to take based on your financial situation, investment goals and risk tolerance.

But above all.

Make sure you’re ready to start investing

Before you start investing, make sure you have a manageable budget and a reliable emergency fund. Most financial advisers recommend setting aside enough to cover at least six months of expenses to cover the unexpected.

You also need to make sure that you have eliminated high interest credit card debt. If you’re only making the minimum payments on your credit card balance, it might be tempting to use your disposable income to invest in the stock market.

Despite the occasional market decline, the S&P500 — considered a benchmark for the entire stock market — returns an average of 10% over the long term. This dwarfs the average interest rate on savings accounts by less than 2%.

But consider this: the average APR for a credit card is 15%. So work on overcoming this hurdle, and then your investment dollars can really take the lead.

Know your investment options

The investment universe is vast and growing. But there are a few choices that may work for beginners:

Shares: Stocks represent ownership shares in a company. Depending on the overall performance of that company, the stock price may go up or down throughout the day. Stock prices can range from pennies to hundreds of thousands of dollars. Due to its inherent volatility, investing heavily in stocks is generally recommended for investors with the risk capacity to withstand dips and the time horizon to recoup losses.

Obligations : Buying a bond basically means you are lending your money to a company or government that promises to pay you back plus interest. Bonds are generally low-risk investments. So, if you’re investing for the short term, it may be worth devoting an adequate portion of your portfolio to bonds. But remember: low risk usually means low returns.

Exchange Traded Funds (ETFs): An ETF is a basket of various stocks or bonds. You can buy shares of an ETF just like you would an individual stock. ETFs are known for their instant diversification, low fees and low costs.

Mutual fund : Like ETFs, mutual funds invest in a variety of stocks, bonds and other securities. But they don’t trade like stocks and ETFs. Most require a minimum investment, which can be around $1,000 or more.

Index funds: An index fund is a type of mutual fund that aims to track the performance of a stock market index like the S&P 500 or the Nasdaq. This strategy is known as passive management. Because index fund managers want to mimic the performance of a benchmark rather than outperform it, index funds tend to have lower fees than their actively managed counterparts.

So, now that you know a little about what’s out there, you can search for the right brokerage account.

Image source: Getty Images

Online investment apps

If you’re a beginner, one of the easiest ways to start investing is to download a discounted investing app. Most require no minimum investment.

If you’re saving for retirement, you can open an Individual Retirement Account (IRA) or Roth IRA. But if you’re saving for the short term, you can also open a taxable brokerage account. You can withdraw funds from these accounts at any time without penalty. But you may owe capital gains taxes.

Most of today’s popular investment platforms allow you to invest in a wide variety of stocks, ETFs, and options commission-free. So if you want to create and manage your own portfolio, online brokers offer an inexpensive way to do it.

Having patience and investing for the long term is generally best for most people. But if you want to try and be successful in day trading (and few people actually succeed), you have to know what you’re doing. Learn how to research stocks through techniques such as fundamental analysis and technical analysis.

Digital tools can help you do this. This is where some online brokers fail. Many don’t offer robust tools and platforms that can help you control stocks and ETFs.

More established brokerage firms may offer better solutions for your investment needs. Many portfolio management companies do not require a minimum investment to open a taxable brokerage account. And all the bells and whistles, like advanced stock filters and analysis tools, are free.

But if you don’t have time to spend all day looking at charts and tracking price movements, you can still be successful in investing. In fact, day trading is one of the hardest ways to try to make money in the stock market.

Robo-advisors

A robo-advisor is an investment management service that uses an algorithm to build and manage a diversified portfolio for you.

Here’s how it works: You take an online questionnaire about your financial situation, investment goals and risk tolerance. The robo-advisor then recommends a portfolio typically built with low-cost ETFs.

Because you won’t do any of the legwork, the company offering the robo-advisor may charge an asset management fee. But these are usually competitive at around 0.25%. Some brokerage firms may waive fees if your balance is below a certain threshold.

Additionally, many robo-advisors offer distinct features like automatic rebalancing. This means you won’t have to check your portfolio to make any necessary changes to your asset allocation. The robo-advisor does it for you.

Another common feature of robo-advisors is tax loss collection services. But the downside of robo-advisors is that you won’t be able to pick your own stocks. You are generally limited to a model portfolio built with ETFs or mutual funds.

The bottom line

Before you start investing, make sure you have a manageable budget, an emergency fund, and little or no high-interest debt. Once that’s cleared, you have a lot of options. If you want to analyze and pick your own stocks, consider an online investing app.

If you’re a decide-and-forget investor, a robo-advisor might come in handy. It builds and manages a wallet for you in exchange for a small fee. Online investing apps and robo-advisors can help the novice investor start building long-term wealth.

]]>
3 ways retirees can make the most of their money in an unpredictable market https://purpleribbonproject.com/3-ways-retirees-can-make-the-most-of-their-money-in-an-unpredictable-market/ Sat, 17 Sep 2022 20:36:00 +0000 https://purpleribbonproject.com/3-ways-retirees-can-make-the-most-of-their-money-in-an-unpredictable-market/ By Harriet Edleson When stock market volatility and inflation persist, smart retirees are looking for ways to get the most out of their money. It’s not easy, but small steps can make a difference and prevent you from making bad choices in unpredictable times. “Even when the seas are rough, there are always little things […]]]>

By Harriet Edleson

When stock market volatility and inflation persist, smart retirees are looking for ways to get the most out of their money. It’s not easy, but small steps can make a difference and prevent you from making bad choices in unpredictable times.

“Even when the seas are rough, there are always little things you can do,” says Certified Financial Planner Andrew Feldman, founder of Chicago-area AJ Feldman Financial.

Indeed, the easiest way to cope is to spend less and earn more – if you can. Yet not everyone agrees on exactly what is best to do or what will be comfortable in turbulent times. Some think it’s wise to find income wherever you can while others advise cutting back on your expenses. A balance of the two might work well. It all depends on your assets, your income and the cost of maintaining your lifestyle.

“Rather than trying to get more returns in a time like this, it’s better to cut your expenses,” says Daniel Lee, director of financial planning and advice at BrightPlan, a wellness benefits provider. be financial based in San Jose, California.

Others advise to increase your income. “If you’re concerned about your stable income, do some counseling work,” says Roger Young, vice president, senior director of retirement insights, T. Rowe Price. “Find a side job. Make a hobby a side job. There are many reasons to work in retirement.”

Yet not everyone is able or inclined to return to work in retirement. Whichever camp you’re on, finding ways to increase your income can make a difference. At least it can create a sense of control during what may seem like a chaotic time.

As behavioral economists and financial planners know, emotions can play a role in financial decisions.

“People feel compelled to take action,” says Certified Financial Planner Brent Neiser, founder of What’s Next with Money. Still, he says, “staying put can be a gesture in itself.”

When the stock market fluctuates and inflation hits a 40-year high, retirees may react too quickly rather than carefully assess their current situation before taking action. Keep a long-term perspective, says T. Rowe Price

Young. “If you have a good plan, you probably don’t need to overreact,” he says.

First, make sure your emergency fund/cash reserve is in place. If you have cash to cover at least a year of your expenses, you can start taking a few small steps to improve your finances while inflation and market volatility persist:

Consider buying stocks that pay dividends

You may already have some dividend-paying stocks in your (hopefully) balanced portfolio. Additionally, you may have shares in companies that during the pandemic have stopped paying a dividend. While some companies have started paying a dividend again, others have not.

Read:These dividend-paying stocks yield at least 5% and have plenty of room to increase payouts

“It’s nice to have a mix of dividend-paying stocks,” says Lee. If a stock’s price is relatively low right now and it pays a dividend, it’s worth considering. If you have extra money you’d like to invest, “you can look to dividend-paying stocks for some of your money,” says Young. If the dividend is between 2% and 4% and the stock price is falling, buying low “is definitely a reasonable strategy,” he says. Still, if a dividend is “extremely high,” Young says, be careful and ask yourself why.

If you’re looking for income, you might want your dividends paid to you rather than reinvested, says Neiser, who also served as chairman of the consumer advisory board for the Consumer Financial Protection Bureau. “It’s a way to earn quarterly income,” he says. For example, suppose you retired from your long-term job, but postponed taking Social Security until age 70. Dividends can be a way to bridge your income between the time you retire and the day you start receiving Social Security payments.

Also, consider the tax implications of dividend-paying stocks. According to the IRS, the most common type of distribution from a corporation is dividends, which are paid out of the company’s earnings and profits. Dividends are classified as ordinary or qualified. Ordinary dividends are taxable as ordinary income; qualified dividends, which meet certain requirements, are taxed at lower capital gain rates. These rates are 0%, 15% or 20% and depend on the income bracket of the investor. Qualified dividends for ordinary shares are generally those that have been held for at least 61 days. In most cases, if you have held a stock for more than two months, you will pay the lower qualified dividend tax rate.

Invest part of your cash reserve in bonds I

You can purchase up to $10,000 of I Bonds electronically each year, plus up to $5,000 of paper I Bonds from a tax refund. “You can add them to your portfolio,” says Lee.

The inflation rate resets every six months and the initial rate is 9.62% for new Series I Savings Bonds purchased through October 2022. The current rate will apply for the next six month period. procurement. For example, if you purchased an I bond on July 1, 2022, the 9.62% would be applied until December 31, 2022, according to TreasuryDirect.gov.

Interest is compounded semi-annually. The IRS requires you to report interest income for the year in which you repaid the bond.

Learn more about bonds I

Open a High Yield Savings Account

Keep your emergency fund in a high-yield savings account. If you have a considerable time horizon, it may be worth it, says Feldman. “If you’re 65, you still have a time horizon,” he says.

Lee recommends keeping your cash “easily accessible and convenient,” rather than hopping from bank to bank. “If you have $100,000 in cash, put it in a high-yield savings account,” he says. Some customers “love the security,” he says. “It helps them sleep at night.” Find interest rates here.

-Harriet Edleson

 

(END) Dow Jones Newswire

09-17-22 1636ET

Copyright (c) 2022 Dow Jones & Company, Inc.

]]>
China accelerates massive issuance of local government bonds https://purpleribbonproject.com/china-accelerates-massive-issuance-of-local-government-bonds/ Tue, 13 Sep 2022 18:23:28 +0000 https://purpleribbonproject.com/china-accelerates-massive-issuance-of-local-government-bonds/ Chinese local authorities accelerated the issuance of large-scale local government bonds (LGBs), with the total amount reaching trillions of yuan (billions of US dollars) in September. LGB issuance soared to 6.08 trillion yuan (about $1.1 trillion) from January to August, up 24% year-on-year. Among them, a newly added local bond rose 62.4 percent, totaling 4.021 […]]]>

Chinese local authorities accelerated the issuance of large-scale local government bonds (LGBs), with the total amount reaching trillions of yuan (billions of US dollars) in September.

LGB issuance soared to 6.08 trillion yuan (about $1.1 trillion) from January to August, up 24% year-on-year. Among them, a newly added local bond rose 62.4 percent, totaling 4.021 billion yuan (about 581 million U.S. dollars), as reported by official media Securities Daily on Sept. 2.

The trend is accelerating, as 43.1 billion yuan (6.1 billion dollars) of LGB were issued from August 29 to September 2, and 56.9 billion yuan (about 8.1 billion dollars) the following week, according to Wind, a provider of financial data services. , and cited by 21 Jingji, supported by the state.

In China, LGBs can be described as: by purpose, newly added and refinanced. Rollover bonds refer to funds raised to repay the principal of maturing LGBs.

The first eight months of this year saw the issuance of newly added bonds worth 4.2 trillion yuan (about $604 billion), which was beyond expectations, an investment consultant said in the report. of the Securities Daily.

In addition, the subsequent issuance of refinancing bonds is expected to significantly exceed last year, said Fen Lin, senior analyst at Beijing-based Golden Credit Rating, citing that the maturity of local bonds between September and December would be around 1.04 trillion yuan (around $197). billion), up 174% from 602.8 billion yuan (about $87 billion) in the same period in 2021.

Local financial governments unable to settle the budget

In recent years, China has generally shown a downward trend in local financial self-sufficiency indicators, according to Chinese financial portal Yicai on June 16.

The local budget financial self-sufficiency rate, or the proportion of general government budget revenue to total local government expenditure, is one of the indicators of local financial sustainability.

In terms of the local government budget, it is estimated that in 2022, general expenditure will reach 11.526 billion yuan (about 1.7 trillion US dollars) and revenue will reach 23.1 trillion yuan (about 3.31 trillion US dollars). Putting the local financial self-sufficiency ratio at just under 50%, according to the report.

In economically advanced regions like Shanghai, Beijing, Tianjin, and provinces like Guangdong, Zhejiang, Jiangsu, Fujian, and Shandong, financial self-sufficiency rates are 60 percent or more. At least 22 provinces have rates below 50% and 11 provinces below 40%.

This gap exists in prefectural and municipal areas in western and northeast China and other regions with less developed economies.

These financial authorities, when they are unable to cover the local fiscal budget, will rely on the support of central and higher governments, or on the issuance of LGB.

Liang Ji, deputy director of the public revenue research center at the Chinese Academy of Fiscal Sciences, told Yicai that the overall rate of local financial self-sufficiency had been declining since 1994 and had fallen to its lowest level in 2020. .

The rate of local self-sufficiency in 2022 will continue to contract as the growth rate of tax expenditures outpaces that of revenues, coupled with lower local tax revenues as the business tax has been replaced by a value-added tax ( VAT) in 2014, Liang said. .

Chinese Premier Li Keqiang speaks upon his arrival for the inaugural meeting of the Board of Governors of the Asian Infrastructure Investment Bank (AIIB) on January 16, 2016 in Beijing, China. (Mark Schiefelbein – Pool/Getty Images)

This decision began with a State Council decision announced by Premier Li Keqiang at a meeting in late 2013. Li said that in 2014, rail transport and postal services would be included in the pilot program. collection of VAT instead of business tax. In March 2016, it evolved into a nationwide implementation, covering all taxes in the telecommunications, construction, real estate, finance and service sectors.

However, the new tax strategy led to higher costs in the banking sector and discouraged the development of technical and labor-intensive service industries. It has also led to a deterioration in the operation of transport companies, according to a study by the Taihe Institute, a Beijing-based think tank, on May 17, 2016.

The cost of massive and frequent nucleic acid testing is draining local finances

Since the outbreak of COVID-19, Chinese authorities have adhered to the so-called dynamic zero vaccination restrictions.

In May, China’s Health Care Safety Administration issued a circular saying that the cost of regular nucleic acid testing should be borne by local governments.

This has placed enormous pressure on some debt-ridden districts to reimburse the costs incurred by frequent full-staff nucleic acid testing, although health lawmakers have called in another notice that all provinces and municipalities reduce the cost of testing for a single person to no more than 16 yuan. (about $2.30) and the cost of multi-person mixed testing at less than 5 yuan (about $0.72) per person from June 10.

Based on the official data above, if one tested every person every three days – and China had 900 million urban dwellers at the end of 2021 – the total annual cost of testing would be 540 billion to 1.7 trillion yuan (about $77.5 billion to $246 billion) .

The hidden debts of Chinese cities

In October 2021, Tencent and Securities Daily, two influential Chinese media, co-published the “City Debt Ratio Ranking List” ranking the debt ratio of Chinese cities. ZJnews.china.com published an article on the data.

Among China’s first- and second-tier cities surveyed, 85 doubled their debt ratio in 2021 from 2020, and 75 doubled their debt ratio from 2019, according to the report.

Notably, the statistics do not include hidden liabilities of local governments, of which urban investment bonds are the most important.

China’s urban investment bonds, of which local governments are the implicit guarantors, are issued on the Shanghai Stock Exchange (SSE), the Shenzhen Stock Exchange (SZSE) and the interbank market, by investment companies urban, and the funds raised are used for the construction of local infrastructure or public welfare projects.

Urban investment bonds are a unique type of bond for the Chinese communist government. From underwriters to investors and people involved in the bond issuance process, all are considered part of local government bond issuances. In other words, a municipal investment company functions as a financing platform supported by the local government.

In an April 2021 article published on Yicai, Zhao Wei, chief economist of state-owned Kaiyuan Securities, said that by mid-2020, the scale of local hidden debt represented by the interest-bearing debts of platforms urban investment totaled 43.8 trillion yuan (about $6.29 trillion), far more than the explicit debts which totaled 23.9 trillion yuan (about $3.43 trillion); the combined debt ratio is close to 250%, far exceeding the current alarm point.

Moreover, since 2020, urban investment bonds raised to “repay old debts” have exceeded 85%, and interest payments on debt already represent more than 5% of budget expenditures, indicating that debts are intensifying in China, Zhao warned.

jessica mao

Follow

Jessica Mao is a staff writer for The Epoch Times and focuses on China-related topics. She started writing for the Chinese language edition in 2009.

]]>
Tax incentives unlikely for sovereign green bonds https://purpleribbonproject.com/tax-incentives-unlikely-for-sovereign-green-bonds/ Mon, 12 Sep 2022 00:00:00 +0000 https://purpleribbonproject.com/tax-incentives-unlikely-for-sovereign-green-bonds/ The Center is unlikely to offer tax incentives for the issuance of its first green bonds in the second half of the current fiscal year, as it believes that investor interest in them stems from green pledges from ‘enterprises and funds, rather than profit motives. Rupee-denominated bonds, through which the government plans to raise Rs […]]]>

The Center is unlikely to offer tax incentives for the issuance of its first green bonds in the second half of the current fiscal year, as it believes that investor interest in them stems from green pledges from ‘enterprises and funds, rather than profit motives.

Rupee-denominated bonds, through which the government plans to raise Rs 20,000 crore-Rs 25,000 crore, will carry a slightly lower coupon rate than comparable government securities (G-secs).

The yield on 10-year G-secs is now around 7.2%.

“We are confident that companies and funds that want to invest in green technologies and businesses for their ESG (environmental, social and governance) objectives will rise to the challenge,” an official said, adding that higher interest rates and tax incentives would negate the purpose of this bond issue to raise low-cost funds for long-term climate finance.

Despite lower returns, many investors are setting aside funds to invest in green projects as part of their ESG obligations. As corporate sustainability disclosures increase, this information could be used by banks, credit rating agencies and other financial institutions, along with financial information to assess the credibility of a company.

“As part of the government’s global market borrowings in 2022-23, sovereign green bonds will be issued to mobilize resources for green infrastructure. The proceeds will be deployed in public sector projects that help reduce the carbon intensity of the economy,” Finance Minister Nirmala Sitharaman said in her budget speech earlier this year.

On the annual borrowing plan of Rs 14.31 trillion in FY23, the Center was to borrow Rs 8.45 trillion from the market through dated securities in the first half of FY23 and the rest in the second half. The second half borrowing schedule is expected to be announced at the end of September and green bonds will be part of it.

At the 26th session of the Conference of the Parties to the UNFCCC in Glasgow in November 2021, Prime Minister Narendra Modi declared that India would achieve net zero emissions by 2070, which means that its emissions from greenhouse gases will be less than the total removal and absorption of emissions.

Also Read: Mcap of 7 of Top 10 Highly Valuable Companies Exceeds Rs 1.33 Lakh Crore; TCS, the lead winners of Reliance

According to the CEEW Center for Energy Finance, India would need cumulative investments of $10.1 trillion to achieve net zero emissions by 2070. Of this amount, $8.4 trillion would be needed to significantly increase the production from renewable energies and the associated integration, distribution and transmission infrastructures. An additional $1.5 trillion needs to be invested in the industrial sector to build green hydrogen production capacity to advance the decarbonization of the sector.

Recently, Reserve Bank of India (RBI) Governor Shaktikanta Das said that the central bank and the government are working on a framework to issue sovereign green bonds that meet global standards.

Given the nascent green bond market in India, issuing sovereign green bonds is likely to be a benchmark for companies that are also raising ESG funds for their green projects.

“The results of the sovereign green bond auctions are likely to serve as a benchmark for future issuances by private sector entities in the domestic green bond market,” said Anil Gupta, Vice President of Icra.

Globally, investors follow the Sustainable Development Goals (SDGs) suggested by the United Nations to gauge the right kind of return on their investments.

Green bonds are aimed at institutional investors, including mutual funds that have a mandate to invest in sustainable projects and companies around the world.

According to the standards of the Securities and Exchange Board of India (Sebi), 1,000 of the major listed companies are required to prepare the “annual publication of the corporate responsibility report”, covering their activities related to the environment and relations with stakeholders. These companies will not necessarily invest in bonds, as they have their own green projects and also raise funds through private green bonds.

]]>
Stock Market Implications of the Bond Margin Call https://purpleribbonproject.com/stock-market-implications-of-the-bond-margin-call/ Sat, 10 Sep 2022 07:25:00 +0000 https://purpleribbonproject.com/stock-market-implications-of-the-bond-margin-call/ Olivier Le Moal By Jeff Weniger, CFA The bond market has had two difficult years. The Bloomberg US Aggregate Bond Index began to decline, albeit gently, in August 2020. Last year the grind continued, with the index falling at a frightening but boring pace. 1.7%. Then came 2022. With the index down more than 10% […]]]>

Olivier Le Moal

By Jeff Weniger, CFA

The bond market has had two difficult years.

The Bloomberg US Aggregate Bond Index began to decline, albeit gently, in August 2020. Last year the grind continued, with the index falling at a frightening but boring pace. 1.7%.

Then came 2022.

With the index down more than 10% this year, bond investors are bracing themselves for an omen that’s been rare, at least since I’ve been in this industry: three quarters in a row of red ink in fixed income brokerage statement page. This may or may not happen – bonds were down 0.06% in July and August, so a small rally in bonds in September would end the streak.

Nevertheless, 2022 has been weird. In “normal” times, one would expect bonds to thrive in a weakening economy. But this year, that old truism was thrown out the window.

The NASDAQ is inspired by the long bond yield. It is down 23% and the S&P 500 Growth Index is following it with a loss of 21%. This puts into perspective the relative safe haven status of the S&P 500 Value Index, which fell “only” 7%.

Figure 1: NASDAQ is pegged to bond yields

NASDAQ is linked to bond yields

The stock market results look suspicious. I think this is a problem for very high beta stocks which tend to fill growth baskets.

Consider this. The New York Fed’s Q3 Senior Loan Officer Survey found that 14% of US banks are tightening their lending standards. In Figure 2, we can see three episodes over the past quarter century in which this measure deteriorated from a sharp easing to a sharp tightening of this magnitude. These episodes took place in 2000, 2007 and 2020 – all good times to predict that revenues would decline.

Admittedly, I don’t know if drawing a comparison to the global financial crisis is warranted at this stage of the game, so take that with a grain of salt. Nonetheless, a scenario that sees S&P 500 earnings growth decline in 2023 is plausible, reasonable, and possible.

Figure 2: Tighter bank lending standards bode ill for S&P 500 earnings

Tighter bank lending standards bode ill for S&P 500 earnings

If that were to happen, we would have a situation where the entire yield curve could follow the Fed’s rate hike, while at the same time equity investors find little solace in earnings reports.

We don’t know if the current relationship will hold, but it seems to me that if the bond market wants to sell and S&P earnings want to lay an egg, then growth stocks are a problem child in 2023.

In other words, growth stocks are now the anti-diversification and pro-concentration asset class. As the bond market receives its proverbial margin call, there may come that moment every investor dreads: scrolling through the list of holdings to find something to sell.

If it’s the Bloomberg Aggregate that’s giving investors headaches in the months and years ahead, maybe it’s the NASDAQ-style holdings that hit the sell button. If the bond market action continues to penalize growth stocks, our dividend strategies could represent something of a safe haven.

Unless otherwise stated, data is as of 08/30/22.

Jeff Weniger

Jeff Weniger, CFA, Head of Equity Strategy

Jeff Weniger, CFA, is head of equity strategy at WisdomTree. In his role, Weniger helps formulate the company’s stock market outlook by assessing macroeconomic and fundamental trends. Prior to joining WisdomTree, he was Director, Senior Strategist at BMO, where he worked in the Office of the Chief Information Officer from 2006 to 2017. He served on the company’s Asset Allocation Committee and co-managed the firm’s model ETF portfolios for the United States and Canada. In 2013, at the age of 32, Jeff was chosen as the youngest member of BMO’s Global Investment Forum, which brought together the firm’s top global strategists to formulate the official long-term outlook for the company for investment trends and markets. Jeff holds a BS in Finance from the University of Florida and an MBA from Notre Dame. He is a CFA charter holder and a member of the CFA Society of Chicago since 2006. He has appeared in various financial publications such as Barron’s and the Wall Street Journal and makes regular appearances on Canada’s Business News Network (BNN) and Wharton Business Radio .

Original post

Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.

]]>
What does an inverted yield curve mean to you? https://purpleribbonproject.com/what-does-an-inverted-yield-curve-mean-to-you/ Tue, 06 Sep 2022 08:26:02 +0000 https://purpleribbonproject.com/what-does-an-inverted-yield-curve-mean-to-you/ You’ve heard the term inverted yield curve (IYC) mentioned many times in the media, even on the evening news. There’s a negative stigma attached to it, but like many people, you may not know what it actually means or how it might affect you. A yield curve is created on a chart by plotting treasury […]]]>

You’ve heard the term inverted yield curve (IYC) mentioned many times in the media, even on the evening news. There’s a negative stigma attached to it, but like many people, you may not know what it actually means or how it might affect you. A yield curve is created on a chart by plotting treasury bills by maturity on the X axis and by yield on the Y axis. 1-year cash, 2-year cash, then 5-year cash, 10-year cash, and so on along the X axis in order of shortest to longest term. The long end of the yield curve starts with 10-year Treasury bills. Yield is labeled on the Y axis from zero and high from low to high. As you plot the yield and maturity of each cash, the plots should gradually increase with longer maturity dates. Shorter maturities generally have lower yields, and they increase as maturities get longer. Connecting the plots generates the visual yield curve. The yield curve helps investors visualize and measure the risk and potential rewards of investing in treasury bills.


MarketBeat.com – MarketBeat

Positive yield curves

The yield curve is used as a benchmark used by investors when comparing fixed income instruments beyond treasury bills, including government, corporate and municipal bonds and CDs. Yield curves have three shapes, a positive upward slope, a flat slope, and a negative inverted slope. A positive yield curve has an upward slope because shorter maturities have lower yields than longer maturities. This is because the risk increases with longer periods and therefore the reward must be commensurate. This is the most common and expected yield curve during times of economic growth. This can eventually lead to inflation causing higher interest rates.

Inverted Yield Curves

Inverted yield curves have decreasing negative slopes because shorter maturities have higher yields than longer maturities. They occur when investors expect an economic downturn because the risk is higher in the short term than in the long term. As investors seek safety in long-term bonds, yields rise for shorter maturities. As investors shift from short-term bonds to long-term bonds, yields reverse. Flat yield curves are the middle or transition stage when yield curves reverse from positive to negative and vice versa. Yield curve flattening occurs when long-term rates fall while short-term rates rise during reversals, which is an early signal of a reversal.

Impact of inverted yield curves

Inverted yield curves are like Mothman’s observations which are generally seen as a warning signal of an impending economic downturn that could lead to a recession. This was the case during the housing bubble and the financial collapse of 2007, the yield curve having inverted in 2006 before the recession. Past recessions show that an inverted yield curve signals a recession six to 36 months after the inversion. The yield curve briefly inverted in 2019, but the pandemic steepened quickly following the pandemic. Overall, the inverted yield curve resulted in signaling the last five recessions in 62 years from six months to three years. Critics argue that this is a coincidence, not a correlation, with the inevitability of economies going through booms followed by busts.

Yield Curve Distortion

The 2008 financial crisis spawned the era of quantitative easing in which the Federal Reserve “prints money” by buying long-term US Treasuries to stimulate growth (and the stock market). In doing so, it drives down yields on longer maturities, thereby inverting the yield curve in the process. Or if the Fed is selling long-dated Treasuries, why buy short-dated Treasuries to flatten and steepen the yield curve. Critics point out that this distortion caused by Fed intervention makes the inverted yield curve a less reliable indicator of recession.

How does this affect you?

Banks use the credit risk tempered yield curve to determine the rates they will charge you on loans. This will affect your credit card, car loan and mortgage payments. Since yield curves precede recessions and bear markets typically occur during recessions, an inverted yield curve can trigger a sell-off in the market as investors avoid risk and get into safety. long-term treasury bills. Many argue that this is self-fulfilling rather than correlated. However, the yield curve continues to deepen in 2022 as the Fed maintains a hawkish stance with its interest rate hikes

]]>
Rome’s Financial Volatility Will Shock Eurozone – Hedge Funds Bet $39 Billion Against Italian Debt Cryptocurrency https://purpleribbonproject.com/romes-financial-volatility-will-shock-eurozone-hedge-funds-bet-39-billion-against-italian-debt-cryptocurrency/ Sun, 04 Sep 2022 16:30:05 +0000 https://purpleribbonproject.com/romes-financial-volatility-will-shock-eurozone-hedge-funds-bet-39-billion-against-italian-debt-cryptocurrency/ Hedge funds are betting against Rome’s liabilities as data from S&P Market Intelligence indicates investors have amassed a $37 billion short bet against Italian debt. Hedge funds are betting big against Italian bonds and investors haven’t bet this high against Rome since 2008, when Italy faced political uncertainty, an energy crisis and an inflation rate […]]]>

Hedge funds are betting against Rome’s liabilities as data from S&P Market Intelligence indicates investors have amassed a $37 billion short bet against Italian debt. Hedge funds are betting big against Italian bonds and investors haven’t bet this high against Rome since 2008, when Italy faced political uncertainty, an energy crisis and an inflation rate of 8 .4% in July.

Investors expect Italian debt default amid choppy bond market and energy crisis

Italy’s economy has been unstable lately, with the war between Ukraine and Russia wreaking havoc on the European country adjacent to the Mediterranean coastline. The country is facing a major energy crisis and Italian residents are being asked to turn down the heating this winter. The Italian economy has people speculating it will only get worse and reports show a massive number of investors are shorting Rome’s debts.

The bond borrowing patterns highlight how investors are borrowing Italian liabilities in order to bet that values ​​will fall before the debt buyback matures. Data from S&P Market Intelligence shows that 37.20 billion euros of Italian bonds have been borrowed as of August 23. The sum of bonds borrowed is the highest since January 2008 during the Great Recession. Italy also continued to show high inflation rates, with May posting 7.3%, June registering 8.5% and July registering 8.4%.

The $37 billion in shorts suggests market speculators believe Rome will default and the financial shock will spread like a contagion across Europe. Italy is traditionally known for having a strong economy but the country is dependent on Russian gas. The International Monetary Fund (IMF) warned last month that Italy’s economy would shrink by 5% due to tensions between Europe and Russia over the Ukraine-Russia war. Italy’s economic slowdown is unfolding as India overtakes the UK as the world’s fifth-largest economy.

Reports noted in July that Italy and the country’s Prime Minister Mario Draghi had not done enough “to revive growth”. Despite Draghi’s promise to save the euro in July 2012, Italy is in trouble and the country is paying the highest premium for borrowing bonds after Greece. Berenberg economist Holger Schmieding said: “Draghi is trying, has done a bit here and there, but neither I nor the market are yet convinced that trend growth in Italy is strong enough.”

Keywords in this story

bond market, bond crash, bond regime, bonds, default, economy, economy, energy crisis, Europe, eurozone, gas, Germany, Greece, India, inflation, Italy, market speculators, Mediterranean coastline, premium, Rome, Russia, United Kingdom, Ukraine-Russia War

What do you think of hedge funds betting against Italian debt? Let us know what you think about this topic in the comments section below.

Jamie Redman

Jamie Redman is the news manager for Bitcoin.com News and a fintech journalist living in Florida. Redman has been an active member of the cryptocurrency community since 2011. He is passionate about Bitcoin, open-source code, and decentralized applications. Since September 2015, Redman has written over 5,700 articles for Bitcoin.com News about disruptive protocols emerging today.




Image credits: Shutterstock, Pixabay, Wiki Commons

Disclaimer: This article is for informational purposes only. This is not a direct offer or the solicitation of an offer to buy or sell, or a recommendation or endorsement of any product, service or company. Bitcoin.com does not provide investment, tax, legal or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

]]>
KBRA assigns an AA+ rating and stable outlook to TBTA’s PMT Senior Lien Repayment Green Bonds, Subseries 2022D-1a and 2022D-1b and Senior Green Bonds, Subseries 2022D-2 https://purpleribbonproject.com/kbra-assigns-an-aa-rating-and-stable-outlook-to-tbtas-pmt-senior-lien-repayment-green-bonds-subseries-2022d-1a-and-2022d-1b-and-senior-green-bonds-subseries-2022d-2/ Fri, 02 Sep 2022 15:10:00 +0000 https://purpleribbonproject.com/kbra-assigns-an-aa-rating-and-stable-outlook-to-tbtas-pmt-senior-lien-repayment-green-bonds-subseries-2022d-1a-and-2022d-1b-and-senior-green-bonds-subseries-2022d-2/ NEW YORK–(BUSINESS WIRE)–KBRA assigns a long-term AA+ rating to the Triborough Bridge and Tunnel Authority (TBTA) Payroll Mobility Tax (PMT) Senior Lien Green Bonds, Series 2022D (Climate Bond Certified), which consists of: Payroll Mobility Tax Senior Privilege Refunding Green Bonds, Subseries 2022D-1a (Climate Bond Certified) Payroll Mobility Tax Senior Privilege Refunding Green Bonds, Subseries 2022D-1b […]]]>

NEW YORK–(BUSINESS WIRE)–KBRA assigns a long-term AA+ rating to the Triborough Bridge and Tunnel Authority (TBTA) Payroll Mobility Tax (PMT) Senior Lien Green Bonds, Series 2022D (Climate Bond Certified), which consists of:

  • Payroll Mobility Tax Senior Privilege Refunding Green Bonds, Subseries 2022D-1a (Climate Bond Certified)

  • Payroll Mobility Tax Senior Privilege Refunding Green Bonds, Subseries 2022D-1b (Capital Appreciation Bonds – Climate Bond Certified)

  • Payroll Mobility Tax Senior Preferred Green Bond Subseries 2022D-2 (Climate Bond Certified)

The outlook for all of the above bonds is stable.

At the same time, KBRA confirms the AA+ long-term rating, with a stable outlook, on the outstanding Senior Lien PMT bonds issued by TBTA and the K1+ short-term rating on the outstanding PMT Bond Anticipation Notes (BAN) bonds issued by the TBTA and Metropolitan Transportation Authority (MTA).

Click here to see the report. To access relevant notes and documents, click here.

Disclosures

Further information on key credit considerations, sensitivity analyzes that consider factors that may affect these credit ratings and how they could lead to an upgrade or downgrade, and ESG factors (where they are a key factor in changing the credit rating or rating outlook) can be viewed in the full rating report mentioned above.

A description of all substantially significant sources that were used to prepare the credit rating and information on the methodology(ies) (including all significant models and sensitivity analyzes of key relevant rating assumptions, if any) used to determine credit rating are available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be found here.

Only ratings on securities issued by this issuer that are also listed in the security ratings tab for this issuer on KBRA.com as “approved” by Kroll Bond Rating Agency Europe Limited in the European Union and/or by Kroll Bond Rating Agency UK Limited in the United Kingdom are covered by the disclosures set out in this press release and the relevant information disclosure form. No other ratings on issues of this issuer have been approved in the European Union or the United Kingdom, and the information set out herein and in the relevant Disclosure Form is inapplicable to such ratings and cannot not be used for regulatory purposes by the European Union or the United Kingdom. investors in these securities.

Additional information relating to this rating metric is available in the information disclosure form(s) referenced above. Additional information regarding KBRA’s policies, methodologies, grading scales and disclosures is available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the United States Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a rating agency with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a rating agency with the UK Financial Conduct Authority under the temporary registration scheme. Additionally, KBRA is designated as the Designated Rating Agency by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a credit rating provider.

]]>
The Fed is about to go full throttle on QT. Do not be afraid. https://purpleribbonproject.com/the-fed-is-about-to-go-full-throttle-on-qt-do-not-be-afraid/ Wed, 31 Aug 2022 17:24:00 +0000 https://purpleribbonproject.com/the-fed-is-about-to-go-full-throttle-on-qt-do-not-be-afraid/ Comment this story Comment The Federal Reserve’s quantitative tightening program will reach its full potential in September, increasing from $47.5 billion to $95 billion per month. Some market participants fear that this additional monetary tightening will have negative consequences on risky assets and the economy. Given that quantitative easing – the purchase of US Treasuries […]]]>

Comment

The Federal Reserve’s quantitative tightening program will reach its full potential in September, increasing from $47.5 billion to $95 billion per month. Some market participants fear that this additional monetary tightening will have negative consequences on risky assets and the economy. Given that quantitative easing – the purchase of US Treasuries and mortgage-backed securities – has helped firm up the economic recovery and boosted the stock market and other so-called risky assets, it seems that quantitative tightening could have the opposite effect. But these are unusual times, and such an assumption could prove costly.

Critics of QE may downplay its effect on the economy, but it is generally accepted that the policy has boosted financial asset prices, especially in times of market stress. Unfortunately, forecasting stock prices isn’t as simple as overlaying a graph of the size of Fed balance sheet assets on the S&P 500 Index.

Besides QE and QT, other factors directly affect economic liquidity. Incorporating inputs such as the Fed’s Reverse Repurchase Agreement Facility, which allows financial institutions to store excess cash with the central bank, and the General Treasury Account, which functions as the government’s current account at the central bank. These elements create a more robust liquidity gauge that better explains recent stock market movements, while providing an improved framework for predicting QT effects.

When the Covid-19 pandemic hit, the Fed embarked on an unprecedented QE program, buying about $120 billion in bonds each month. At the same time, the government enacted the biggest fiscal stimulus in decades, which injected trillions of dollars into the economy. The liquidity created by QE and fiscal stimulus was so great that commercial banks no longer wanted deposits from large institutional customers because there were not enough safe assets available for purchase.

To remedy the situation, the Fed expanded its reverse repo program, which involved the Fed providing high-quality collateral with the promise to redeem it in a certain number of days at a higher price. Reverse repos are a cash-draining operation, much like QT. They both imply that the Fed decreases the amount of cash in the system by increasing the amount of bonds. Usually, the Fed only engaged in repurchase transactions with primary dealers, but the need to absorb additional liquidity was so great that it expanded the list of eligible counterparties to include mutual funds. investment and other non-traditional accounts.

The liquidity glut is evident in the growth of the reverse repo transaction to its current size of $2.18 trillion, from virtually nothing before the pandemic.

Reverse repos are just one example of a Fed operation that affects liquidity, but there are others, including those from other branches of government. The General Treasury Account is one that has gained considerable importance over the past decade. In the past, when the government issued fixed income securities and levied taxes, it almost immediately distributed the funds for these efforts. Because of this, the TGA rarely had a balance.

In the era of Covid, however, there have been times when the TGA has grown to previously unimaginable levels, reaching nearly $1.8 trillion by mid-2020. Increases in TGA have the same effect as QT. Bonds are issued and cash withdrawn from the financial system, but the money is not distributed in the economy. This is a cash out operation.

By combining the size of the Fed’s balance sheet with the amount of outstanding repos and the TGA balance, we can create a liquidity indicator that explains stock price movements better than the Fed’s balance sheet alone.

There are concerns about the expected increase in QT on equity prices, but the unique situation with the large reverse repo balance could mitigate any potential effect. If the Fed had securities on its balance sheet that matched the maturity profile required by institutions performing reverse repos, it could sell an amount equal to the total reverse repos balance to those institutions, thereby reducing the need for reverse repos. and resulting in no change in the financial or real economy. Although there may be a duration mismatch in the type of assets demanded, an actual withdrawal of cash is not the problem.

In addition to that, the actual amount of monthly QT is not so important. Given that the reverse repo balance is $2.18 trillion and the Fed is expected to reduce its balance sheet by $95 billion per month, it would take almost two years to work on the repo only through QT. Moreover, the variability of the TGA balance shows that the economy can handle the anticipated withdrawal of liquidity. From the end of November 2021 to April 2022, the TGA increased by $816 billion. That equated to a QT of $163 billion per month, well below the predicted and well-telegraphed increase next month.

Although throughout history there have been a few times when central banks have successfully reduced assets from their balance sheets, this is an unusual time. The extraordinarily high reverse repo balance shows the true extent of the additional liquidity in the financial system. So, as QT unfolds, it will be important to monitor whether the reverse repo balance decreases and how quickly. The QT numbers look large, but compared to the fluctuations in the TGA account and reverse repos, the predicted increase is rather modest.

More other writers at Bloomberg Opinion:

• Powell must back his words with actions: Bill Dudley

• Powell can’t count on a labor market miracle: Jonathan Levin

• What the Hawks didn’t get in Jackson Hole: Daniel Moss

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Kevin Muir is a former institutional equity derivatives trader who now writes the MacroTourist newsletter.

More stories like this are available at bloomberg.com/opinion

]]>