ETF Channel
Market News Video Self Directed Investor The Warren Buffetts Next Door Stock message boards Portfolio Channel
Underappreciated factors behind fast-rising bond yields
Fri, Feb 23, 8:04 AM ET,
by , BlackRock

Yes, rates and stocks can rise together…. for now
Wed, Feb 21, 8:04 AM ET,
by , BlackRock

Boiling down two changes to BlackRock's asset class views
Tue, Feb 20, 10:34 AM ET,
by , BlackRock

5 ways to help navigate choppy markets
Thu, Feb 15, 1:50 PM ET,
by , BlackRock

3 Markets on the Stampede
Tue, Apr 18, 3:54 PM ET,
by MoneyShow.com

More articles:  1 2 3 4 5 6 7 next »

  BlackRock   Global   This   Treasury   behind   bond   bonds   could   demand   dollar   foreign   from   further   higher   inflation   information   interest   investment   investors   prices   rate   rates   rising   this   yields


Underappreciated factors behind fast-rising bond yields

Fri, Feb 23, 8:04 AM ET, by , BlackRock

The early February spike in equity market volatility came on the heels of fast-rising bond yields. What's behind the quickening pace? Our 2018 fixed income outlook -- Fuel for (over)heating -- offers one possible explanation: U.S. fiscal stimulus, confidence-inducing investment and a steady global expansion are reawakening investor inflation fears.

Markets do appear to have suddenly woken up to the prospect of an inflation comeback in the U.S., a key theme of our 2018 Global investment outlook. But we see others interrelated factors also behind the re-calibration of rate expectations, as we write in our new Global bond strategy Recalibration and repatriation.

Increasing Treasury supply

Supply of Treasury bonds is headed up, and demand is declining. We estimate net supply could increase by some $488 billion, just as an erstwhile reliable buyer, the Federal Reserve, is trimming re-investments. This upsets the supply/demand balance of Treasury bonds and portends higher rates.

The weakening U.S. dollar

A less obvious culprit behind rising rates in January was the weakening U.S. dollar. Low rates in the rest of the world anchor U.S. yields. That has been the story to explain low U.S. rates and a flattening yield curve. But fading confidence in dollar stability now could turn this causality on its head: A weakening dollar may push up rate differentials as non-U.S. investors repatriate assets.

A flow of unhedged U.S. bond investments is headed back to the domestic markets of non-U.S. investors. This repatriation trend is showing itself in decreased foreign purchases of U.S. bonds and increased flows into non-U.S. bond funds, as the chart below shows.

Feb18FixedIncomeOutlookCharts_NetPurchase_WebVersion

Rising hedging costs have reduced the attractiveness of U.S. rates to foreign investors, and small dollar declines can wipe out any perceived benefit from higher U.S. yields for foreign investors. Other reasons for the flows may be prospects for higher returns at home as well as expectations for rising domestic interest rates. Lastly, rising oil prices may have sparked fears over a further dollar slide. This sort of repatriation is helping to dim the dollar's prospects, lifting an anchor holding down yields on longer-dated U.S. rates.

icon-pointer.svg The Bid podcast: Jeff speaks about the role of fixed income in 2018.

The oil factor

Any further rise in oil prices could weigh on the dollar, making crude a contributor to the pullback from U.S. debt by unhedged foreign investors. How likely is this to happen? Supply discipline by traditional oil producers and strong global demand underpin high crude prices. Yet nimble U.S. shale production tends to kick in whenever prices are high, capping the upside. This potentially reduces the role of oil in any further dollar downdraft.

Bottom line

We see steadily steeper curves and higher rates improving the outlook for short versus long maturities. We particularly like two- to five-year bonds for their yield-duration ratios. Floating rate and inflation-linked instruments are attractive for their potential buffer against rising rates and inflation. We prefer an up-in-quality stance in credit, favoring investment grade over high yield. Read more market insights in our Global bond strategy.

Jeffrey Rosenberg, Managing Director, is BlackRock's Chief Investment Strategist for Fixed Income, and a regular contributor to The Blog.

Investing involves risks, including possible loss of principal. Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments. This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of February 2018 and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain ''forward-looking'' information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this post is at the sole discretion of the reader. ©2018 BlackRock, Inc. All rights reserved. BLACKROCKis a registered trademark of BlackRock, Inc., or its subsidiaries in the United States or elsewhere. All other marks are the property of their respective owners. 432735

10 ETFs With Stocks That Insiders Are Buying
10 ETFs With Most Upside To Analyst Targets
25 Dividend Giants Widely Held By ETFs
25 S.A.F.E. Dividend Stocks Increasing Payments For Decades
Broker Darlings: Top 15 Analyst Picks of the Dow
Top 25 Broker Analyst Picks of the S&P 500
Forgotten S&P 500 Giants: Analysts' Current Least Favorites
25 Top Ranked Socially Responsible Dividend Stocks
10 Oversold ETFs
The Top 10 DividendRank'ed Stocks
Warren Buffett Dividend Stocks
The DividendRank Top 25
The Top 10 DividendRank'ed DJIA Components
The Top 10 DividendRank'ed Dow Transports Components
The Top 10 DividendRank'ed Dow Utilities Components
The Top 10 DividendRank'ed Nasdaq 100 Components
10 Stocks Going Ex-Dividend
10 Oversold Dividend Stocks
10 Stocks Where Yields Got More Juicy
10 Dividend Bargains You Can Buy Cheaper Than Insiders Did
Top Ranked Dividend Stocks With Insider Buying
10 Energy Stocks You Can Buy Cheaper Than Insiders Did
10 Metals Stocks You Can Buy Cheaper Than Insiders Did
10 Oversold Metals Stocks
10 Must-Know High-Yield REITs
10 Top DividendRank'ed Financials
10 Top DividendRank'ed Metals Stocks
10 Oversold Energy Stocks
10 Top DividendRank'ed Energy Stocks
10 Top DividendRank'ed Utility Stocks
10 Stocks Crossing Below Book Value
10 Stocks Crossing Above Their 200 Day Moving Average
10 Stocks Crossing Below Their 200 Day Moving Average
10 ETFs Crossing Above Their 200 DMA
The 10 Biggest ETFs
The 10 Best ETF Performers
The 10 Worst ETF Performers
10 ETFs With Notable Inflows
10 ETFs With Notable Outflows
Top 10 Analyst Rated Consumer Stocks
Top 10 Analyst Rated Dividend Stocks
Top 10 Analyst Rated Energy Stocks
Top 10 Analyst Rated Financial Stocks
Top 10 Analyst Rated Healthcare Stocks
Top 10 Analyst Rated REIT Stocks
Top 10 Analyst Rated Technology Stocks
The Top 10 DividendRank'ed Canadian Stocks
The DividendRank Canada Top 25
10 Canadian Stocks Going Ex-Dividend
10 Oversold Canadian Stocks
10 Canadian Stocks Where Yields Got More Juicy
10 Must-Know High-Yield Canadian Real Estate Stocks
10 Top DividendRank'ed Canadian Financials
10 Must-Know High-Yield Canadian Energy Stocks
10 Canadian Stocks Crossing Below Book Value
10 Canadian Stocks Crossing Above Their 200 Day Moving Avg
10 Canadian Stocks Crossing Below Their 200 Day Moving Avg
Stock market game

ETF Articles | ETF Channel | www.ETFChannel.com | Copyright © 2009 - 2018, All Rights Reserved

Nothing in ETF Channel is intended to be investment advice, nor does it represent the opinion of, counsel from, or recommendations by BNK Invest Inc. or any of its affiliates, subsidiaries or partners. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable for any specific person. All viewers agree that under no circumstances will BNK Invest, Inc,. its subsidiaries, partners, officers, employees, affiliates, or agents be held liable for any loss or damage caused by your reliance on information obtained. By visiting, using or viewing this site, you agree to the following Full Disclaimer & Terms of Use and Privacy Policy. Video widget and ETF videos powered by Market News Video. Quote data delayed at least 20 minutes; ETF data powered by Ticker Technologies, and Mergent. Contact ETF Channel; Meet Our Editorial Staff.