The Financial Nuggets franchise is approaching a size that is too big and diverse. Articles related to the same overarching theme will be posted in this spin-off. This should help in getting the market to attribute a higher valuation to the individual parts that make up the franchise. The timing is also right, since spin-off are enjoying a higher valuation than history suggests.
Re: The Nuggets spin-off
The first overarching theme will be interest rates. And their impact on bond prices and money flow.
Re: The Nuggets spin-off
Regular readers are familiar with ultralong bonds -.With durability as high as 100 years. (One year per Tendulkar century).
Since interest rates are low, folks are paying up for higher yield and driving up prices for long term bonds. Corporations and governments alike have rushed to issue bonds > 30 years in duration to lock in low interest rates.
Re: The Nuggets spin-off
To get an idea of the grwoth, these ultra long bonds have increases 55 pct to 143 billion us dollars since 2012. While the ones less than 30 yrs have increased by 4.6 pct to 5.3 trillion us dollars in the same period.
Re: The Nuggets spin-off
Mexico sold a 100 to bond Canada 60 yr. France Austria Switzerland Japan and UK also have joined the party.
One the corporate side McDonald’s sold a 40 yr 300 million pound bond in June. Caterpillar 50 yr 500M $ yielding 4.77 pct in may or only 1.4 pct more than 30 yr us treasury.
Readers don’t u think this is insane? When interest rates r inevitably going to rise these bonds will go down in price. So why the high demand? Good question #DearReader](http://www.paklinks.com/gs/usertag.php?do=list&action=hash&hash=DearReader)
Answer to follow.
Re: The Nuggets spin-off
Pension funds that have to meet long term obligations are major buyers of such bonds. Especially since the stock mkt has done well recently. So they can use some of the profits to buy these ultralong bonds and thjs book future cash inflows to meet future obligations.
Source of above posts Aug 6 wsj
Re: The Nuggets spin-off
At the other end of the spectrum, ultrashort bonds r also in demand. Since money mkts yield nex t to nothing, these bonds with their 0.7 pct yield have attracted attention. But some of these bond funds go up the yield duration curve and hence r not as safe as touted. In 2008 these bonds lost 8 pct on average.
So those who think such bond funds r a proxy for cash may be in for a rude surprise. Esp with interest rates more likely to rise.
Source sat Aug 9 wsj
Re: The Nuggets spin-off
With interest rates hovering near historic lows, high yielding stocks have also been bid up. And as price goes up, yield goes down. Utility stocks belong in this category - currently yielding only 3.9 pct. I say onky, cause a few years ago, they yielded 5 plus pct.
There r some headwinds.
1).These shares have been bid up
2) Trend for power consumption is down - Mix.of high efficiency, conservation and pullback from companies.
As interest rates rise, expect these stocks to take a hit.
Source Aug 8 wsj
Re: The Nuggets spin-off
Aug 4 WSJ
Junk bonds have been getting hit lately. When interest rates were going down, investors loaded up high yield debt - aka junk bonds - and bid up their prices. Now, with the fed scheduled to end the Treasury bond buying program and schedule do start raising rates mid 2015 (per our best guess), junk bonds are feeling the pressure.
Never gets old.
With this, we conclude our first series of related topic posts in this Nuggets spin-off thread. Hope you all enjoyed it. We should do this again sometime.
Re: The Nuggets spin-off
#AlertReader](http://www.paklinks.com/gs/usertag.php?do=list&action=hash&hash=AlertReader) points out that US 10 yr Treasury bonds are at a low for the year at 2.45. Ditto the German 10 yr bonds at 1.08.
Thank you #AlertReader](http://www.paklinks.com/gs/usertag.php?do=list&action=hash&hash=AlertReader) . Even though the interest rate topic was closed, we have made an exception to accommodate your #Alertness](http://www.paklinks.com/gs/usertag.php?do=list&action=hash&hash=Alertness) .
Re: The Nuggets spin-off
The German 10 yr bond yield is below 1 pct.