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3 Month Bill Drops To 5.3%In this video, it was difficult to explain everything -- The first thing we look at is the 3-month bill the price of this bond -- Is set to drop as of this writing Later the price will be baked into the market -- In about 4 days from now This is very important to understand -- Because the financial market is backed by Bonds -- Once you understand bonds then you will learn How you can well profit from this type of market psychology -- Watch this video to learn more -- Disclaimer: Do not buy or sell what i tell you to buy or sell do your own research before you trade This is not financial advice -- To learn more about this topic rocket boost this article
TVC:US05YEducation
by lubosi
Why Corporate Bonds are not a good option for Retail InvestorsCorporate bonds or tradeable debt instruments issued by corporations are a type of fixed income security. Given the recent media attention and the rising demand for fixed income investments among retail investors, it may come as a surprise that they are not suitable for all investors. Corporate bonds have different risks associated with them than other fixed income investments like savings accounts, money market funds, and even municipal bonds. If you are considering investing in corporate bonds or are already holding some in your portfolio, here is why you should avoid them as a retail investor What is a Corporate Bond? A corporate bond is a debt instrument issued by a corporation to raise money. Corporate bonds typically have a set maturity date after which the outstanding principal will be repaid. There are many kinds of corporate bonds, including investment grade and high yield, government and non-government, and they can be issued in local or foreign currencies. Corporate bonds are often traded on the secondary market, which means they are liquid and can be bought and sold easily. Investors earn a return on corporate bonds by receiving interest payments and by the increase in the bond’s value as it matures. The interest rate on a corporate bond is based on factors like the company’s credit rating, the length of time the bond is outstanding, and the bond yield in the market at that time. Corporate bonds are typically less liquid than stocks, and may have shorter holding periods, especially if you purchase them on the secondary market. Risks of investing in Corporate Bonds Corporate bonds are considered a form of debt financing, and as such, there are risks associated with holding them. The main ones are default, liquidity, and interest rate risk. - Default risk - Investing in corporate bonds entails the risk that the issuing company will default on the payment of interest or the repayment of principal. However, since corporate bonds are issued by companies in different industries, there is a low probability that they will all default at the same time. - Liquidity risk - The risk that you will not be able to sell the investment in a timely fashion at a price that is attractive to you. - Interest rate risk - The risk that if you hold the investment until maturity, you will earn a lower rate of return because interest rates will have risen in the meantime. Why you should avoid Corporate Bonds as a Retail Investor While corporate bonds may be suitable for institutional investors, they are not a good option for the average retail investor. For one, you will have to educate yourself on the various types of corporate bonds, their risks and returns, and what kind of companies you should be investing in. Even if you are successful at taking this on, you are likely to end up with a very concentrated portfolio, which brings us to the next problem. The other issue is that retail investors typically hold a small number of bonds and these bonds are often concentrated in a few issuers. This is not a good strategy because if a company defaults, you could lose a large portion of your capital. This is clearly a bad strategy. So, How about Investment grade debt ETFs? LQD, In a rising interest-rate scenario. The bonds' tenure is clearly working against them, especially since unemployment continues to fall at an astonishing rate. This is not the time to invest in this ETF if the Fed raises interest rates to combat inflation. In order to completely comprehend this analysis we must know how important the duration is, while investing in bonds. Duration is an important topic. It is the bond's effective maturity, which means it is oriented to something lesser than the time of the bond's final payment since part of the bond's value, generally from coupons, happens earlier in the bond's existence. If a bond has a longer effective maturity at a fixed interest rate, it indicates that investors are tied to an interest rate that was once market for a longer period of time, and if rates increase as they are currently, you will be bound to an uneconomical rate for a longer period of time. Simply put, longer term bonds lose value more severely when interest rates increase. How maturity of a these bonds (Duration) is affecting LQD Unemployment has gone down despite the increased rates, which has surprised many analysts. The Phillips Curve is back in force, where low unemployment yields high inflation if inflation is kept down, and contrary to common perception, Consumer spending has declined, but unemployment is so low that it might rise again unless the Federal Reserve, which is committed to lowering inflation, continues its anti-inflation campaign. The Federal Reserve has raised rates as well as given gloomy recession predictions, and more banks are following its lead, including the Bank of England. LQD, which has dropped 14% this year, have long-duration bonds, majority of fixed-rate, which is concering for this ETF. Credit Spread Global Cooperate Bonds in general Corporate bonds continuing their strong performance in July, producing $80 million (+76% year on year).  July was the most profitable month of the year for CBs . Their  revenues in 2022 have exceeded from 2021 ($512 million). Average balances increased by 9.8% year on year, average costs increased by 59% year on year, and usage have increased by 27% year on year. Spreads on non-investment grade and high yield bonds continue to widen as corporate prospects deteriorate owing to weakening consumer demand and stricter financial conditions. In-turns , asset values fall, yields rises, and borrower demand increases. However, CG Debt funds have seen the highest monthly outflows in May and June (-$73.7 billion) In July, High Yield Bonds enjoyed the relieve rally. Interest rates vs Corporate Bonds comparison Alternatives to Corporate Bonds for retail investors For retail investors, the most advisable option is to go with government bonds. Government bonds have historically offered a lower risk profile compared to corporate bonds. The best way to go about investing in government bonds is to go for a diversified bond fund. Using a bond fund reduces the risk associated with investing in bonds further as the fund manager may hold a large number of different bonds. If you are looking at a short-term investment horizon (less than 10 years), then you could also opt for short-term government bonds. If you have a long-term horizon, then you could consider a long-term government bond fund. Savings accounts, money market funds, and short-term government bonds are very liquid forms of low risk investment options. Conclusion It is important to understand that the corporate bond market is not risk-free. When interest rates are rising, corporate bonds are generally falling in price as they are competing against government bonds with lower interest rates. In times of economic uncertainty or when interest rates are rising, the risk of default is generally higher for companies issuing corporate bonds. Thus, it is advisable to invest in corporate bonds only when the economy is growing steadily. For retail investors, the best options are to go with government bonds or short-term government bonds. These are low risk, liquid investments and will help you achieve your financial goals.
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AMEX:LQDEducation
by EQTSHARES
12
The Link Between Inflation, Rising Bond Yield, & Market Sell-offAggravated by Jerome Powell's speech at the Wall Street Journal Jobs Summit, the tech-led sell-off continues, causing the Dow Jones Industrial Average to fall by 1.11%, S&P 500 by 1.34%, and Nasdaq Composite by 2.11%. On that note, the 10-year Treasury yield also popped to 1.541% during Jerome Powell's speech, later closing at that level for the day. But how, specifically, did Jerome Powell cause the market to sell-off yesterday? Let's find out. Prior to Jerome Powell's speech, there were already a substantial amount of tension surrounding the bond market and concerns regarding inflation. A key event occurring recently that brought a great deal of attention to the acceleration of rising bond yields were the sudden spike in 10-year Treasury yield back in 2/25/21 from 1.38% to 1.54% - temporarily jumping as high as 1.6%, when an auction of US$62 billion 7-year notes was met with weak demand. This rattled the stock market because investors were not ready for the velocity of the 10-year Treasury yield surge. Instead, they were expecting for yields to gradually inch higher throughout the year. In an effort to pinpoint the exact reason for the surge, many conclusions were drawn. One of which relates to inflation concerns. Over the course of the pandemic, trillions in fiscal relief has been delivered, of which an addition $1.9 trillion in fiscal package is expected to come from the Biden Administration. With so much money printed and nowhere to flow yet due to economic lockdown as a result of the pandemic, investors fear that once the economy reopens again, pent-up demand will drive people to go on vacation and spend in masses, injecting all the printed money over the course of the pandemic into the economy all at once, driving inflation up at a rate that has not been seen since the 2008 Financial Crisis. Due to this belief of a looming inflation, it makes bond that are purchased currently potentially worthless because of possible subpar yield. As a result, people flock away from bonds at the moment because they are expecting that yields will rise going forward in order to compensate for inflation risk. Thus, yields are continuously being driven up. However, with the sudden spike in yield, it creates uncertainty around whether we will be seeing an acceleration of rising bond yields and possibly indicate that inflation could be around the corner. The possibility of this scenario is further amplified by vaccination efforts contributing to a recovering U.S. economy, and the incoming $1.9 trillion fiscal package that could further inflate the economy going forward while pushing the economy further into the recovery. Taking all of this into account, let's go back to Jerome Powell's speech. Having understood all of these, investors were looking at Jerome Powell to see whether he would give any indication on how he plan to control the acceleration of the rising bond yield, perhaps through an adjustment of the Fed's asset purchase program, where they will step up on the purchasing of long-term bonds to drive down long-term interest rates, or even extending the Supplementary Leverage Ratio that will be expiring on 3/31/21, so that banks can further help with the purchase of long-term bonds. However, in his speech, Jerome Powell said nothing of the sort, in which the market took as a signal that yields could rise further, triggering the sell-off even further, and driving the 10-year Treasury yield further up to a level that matches the initial 10-year Treasury yield spike back in 2/25/21. In fact, Jerome Powell made supposedly positive remarks stating that he expects the rise in inflation as the economy recovers to only be temporary, that he does not expect the move up in price to be long-lasting nor does he expect it to be enough to change the Fed's accommodative monetary policy, among others. With the market sell-off and surge in yield during his speech, it is clear that the market neither believes his words nor views it positively. To conclude, we are now in a very volatile situation where stocks no longer just goes up. We cannot control the direction of the market, but what we can control is how we deal with this situation emotionally and monetarily. Don't get too hung up on the short-term bearishness of the current market condition because if you zoom out your chart, in the grand scheme of things, this is just a tiny bleep. As such, if you believe that we will eventually recover from this market sell-off, use this as an opportunity to buy into your favorite companies at a huge discount. Invest safe. This is not investment advice so please do your own due diligence! Support this idea with likes and share your thoughts below.
TVC:US10YEducation
by AntrePoint