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Overseas Influences

Demand from overseas investors once again helped the bond market shrug off stronger economic data and weak Treasury auction demand. Favorable yield differentials between Treasuries and key overseas bond yields may provide lingering support for the domestic bond market. The Fed, this week’s release of Fed meeting minutes, and the European economy likely hold the keys to unlocking the low-yield environment.​

High-Yield Bonds & Oil Prices

We find it premature to draw conclusions regarding oil prices and the performance of the broad high-yield bond market. Default rates, the pace of economic growth, and the strength of credit quality metrics among high-yield issuers — not oil prices — will be the primary drivers of high-yield bond market returns.

High-Yield Divergence

The headwinds of rising high-quality bond yields and increasing new issuance have slowed the advance of high-yield bonds in late October 2014, relative to stock market gains. Nonetheless, we expect high-yield bonds may improve as economic expansion, earnings growth, and low defaults continue to drive our positive outlook. We continue to expect a challenging, lowreturn environment across the bond market, with high-yield bonds a likely bright spot.

Breaking Up

The Fed will end outright bond purchases this week, barring any surprises from this week’s Fed meeting. The end of bond purchases should not create much market reaction, as bond investors focus more on global economic growth and expectations for interest rate hikes. The Fed’s breakup will not be a clean one as it maintains a steady influence in the MBS market.

Stay on Guard

Yields may remain low for evidence of any fallout or contagion to the U.S. economy; a stretch of stronger economic data or bolder action by overseas central banks are likely needed catalysts for higher yields. The on-guard mentality in the bond market has pushed back timing for Federal Reserve interest rate hikes.

 
Results: 24 Articles found.
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