Sep 24, 2020
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4 Bond Recommendations To Profit From The Flat Yield Curve

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Federal Reserve Chairman Jerome Powell is more likely to oversee a sequence of gradual rate hikes. (AP. [+] The Federal Reserve has been raising rates of interest all year with a December rate increase seemingly locked and loaded. These rate increases have created an anomaly in an economy whose growth up to now has been spectacular


The anomaly is a flat yield curve. Long-term rates of interest have not moved commensurately with short-term rates. These short-term rates are the sole rates the Federal Reserve can control. A traditional yield curve is one where long-term rates of interest are higher than intermediate and short-term rates. Right this moment the difference between the three-month Treasury bill yield and ten-year Treasury bond yield is 0


7%. When did this last occur? In the course of the 2008 credit crisis. Economists and bond wonks have written about our flat yield curve ad nauseum. I say in preference to cry in pain like so many other investors turn it right into a portfolio gain. In 2016 Envision Capital Management had to buy corporate bonds maturing in 2025 to 2027 to get better over a 3% yield for our clients


Some investors may come about their noses at a three-plus percent yield due in 2019 or 2020. Yet they d probably buy a commensurate yielding stock that may be as volatile as all get out. So hypothetically let s say you put money into a bond maturing in 2019 or 2020 yielding 3% or more


Add to this hypothetical the Federal Reserve increases rates in December and two additional times in 2019. If truth be told short-term bonds will barely feel it because each passing month gets them toward maturity. Without a doubt their value will decline somewhat but assuming the issuer stays in business you will get back par value—100 cents on the dollar


No stock can do that. And remember it truly is without the volatility of a stock getting whipped around by market forces. PROMOTED UNICEF USA BRANDVOICE | Paid Program
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#WhatsWorking: How To Build A More Just And Equitable Economy The Ideas Are Flowing So are the names of such investment candidates exotic junk bonds? Wild emerging markets debt? Illiquid and hard to find? No no and no


Listed here are some names and approximate yields that fit what I think are bargain opportunities that lock in short-term yield. Hughes Satellite Systems 6. 50% due June 15 2019 rated BBB- by Standard & Poor s (CUSIP: 444454AB8) yielding 3. 80% to maturity. KLAC-Tencor Corp. 3. 375% due November 1 2019 rated BBB by Standard & Poor s (CUSIP: 482480AC4) yielding 3


16% to maturity. Kinder Morgan 3. 05% due December 1 2019 rated BBB- and on potential upgraded by Standard & Poor s (CUSIP: 49456BAE1) yielding 3. 09% to maturity. Tiptoe into 2020 and also you get some yield pickup with Masco Corp. 7. 125% due March 15 2020 rated BBB by Standard & Poor s (CUSIP: 574599BG0) yielding 3


60% to maturity. I always advise investors to use the ratings just as a suggestion since the rating agencies are as conflicted as ever. In Envision Capital s shop these balance sheets look fine coverage is sweet current management is executing. And for short-term paper their yields are tasty even though the curve is flat as a pancake



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