Shifting Rates, Shifting Assets05.04.2012
The search for yield remains difficult and has become a particularly daunting task for portfolio managers heading in to the month of May. The build up in demand for U.S. Treasuries that has occurred over the last three months has driven yields on the 10-year note to far below the 2% benchmark.
Equities continue to perform in sluggish fashion and many brokers and traders are of the opinion that stocks are ready for a major correction. That thesis appears to be sound as major indices plummet below key thresholds; the Dow Jones Industrial Average is on the cusp of dropping below 13,000 and the S&P 500 has all but given up on staying above 1400.
Given that the Federal Reserve is hellbent on keeping interest rates at 0% for the foreseeable future and no additional quantitative easing in sight, investors have had to move into asset classes that they may not originally invested in.
“Think about this. You’ve got interest rates at 0% and you’re not getting return on your capital anywhere,” said one hedge fund manager. “So because of this, you have guys going out and investing in stuff they’ve never even looked at before. Corporate bonds, high-yield debt – that sort of thing. Earning a decent return in money markets and CDs are a thing of the past.”
The shift in asset allocation is noticeable on both the institutional and retail level. Mutual fund PMs running fixed-income funds are all over sub-investment grade bonds. Institutional investors are also following suit by moving capital from equities and into bonds, hoping for some suitable rate of return.
Fixed income aside, another area that’s seen explosive demand has been REITs. Individual REITs and exchange-traded funds with baskets focusing on yield have been scooped up by investors of all walks of life. The Dow Jones Equity REIT Index, which tracks performance of multiple REITs, is up 11.23% year-to-date. Compare that with the 7.45% return the S&P 500 has offered and you can see there’s quite a compelling reason for the shift in asset allocation.
ISDA survey shows variety of views on whether increased clearing would improve resilience and efficiency.
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Average daily volume rose 20.4% to $1.2 trillion for the quarter.
Reductions in issuance costs could lead to an expansion of capital markets.
U.S. Treasury ADV rose 64% to $22.7bn, and credit ADV was up 15% to $12.3bn.