February 22nd, 2021 6:33 pm

four score and seven years ago our forefathers

Long Time Bond Bull Still Bullish

April 10th, 2021 8:49 pm

Hoisington Says Bonds Will Soon Escape ‘Inflationary Psychosis’
2021-04-09 19:18:37.433 GMT

By Elizabeth Stanton
(Bloomberg) — Inflation fears, a key driver of the
Treasury market’s biggest quarterly loss in decades, are a
“psychosis” that will fade away over the course of the year,
Hoisington Investment Management Co. said in its latest
quarterly report.
“Contrary to the conventional wisdom, disinflation is more
likely than accelerating inflation,” the report said. After
moving higher during the second quarter, the annual inflation
rate “will moderate lower by year end and will undershoot the
Fed Reserve’s target of 2%,” and “the inflationary psychosis
that has gripped the bond market will fade away.”
Hoisington, whose leadership includes founder Van
Hoisington and chief economist Lacy Hunt, manages about $5
billion in Treasuries. The firm’s Wasatch-Hoisington Treasury
Fund returned 20% last year, more than any other actively
managed U.S. government bond fund, according to Bloomberg data.
It’s had an annual average return of about 7.5% since its 1986
While U.S. GDP is likely to grow in 2021 at the fastest
pace since 1984 and possibly since 1950, several factors will
restrain inflation, Hoisington said. They include:
* Inflation is a lagging indicator, reaching lows an average of
15 quarters after recessions end
* Productivity tends to rebound vigorously after recessions
* Supply-chain restoration will be disinflationary
* Pandemic has accelerated technological advancements
* Growth numbers don’t reflect reflect the costs of rampant
business failures

As inflation “is the key determinant for the level and
direction of long term Treasury yields,” yields also tend to
reach cyclical lows long after the start of recessions, with an
average lag of 76 months since 1990, Hoisington said. “While no
two cycles are ever alike, the trend in long bond yields remains

To contact the reporter on this story:
Elizabeth Stanton in New York at estanton@bloomberg.net
To contact the editors responsible for this story:
Benjamin Purvis at bpurvis@bloomberg.net
Debarati Roy, John McCorry

Huge Short in TLT

April 6th, 2021 1:04 pm

Short Bets in $14 Billion Treasury ETF Say Yield Calm Will Break
2021-04-06 16:17:24.422 GMT

By Katie Greifeld
(Bloomberg) — As Treasury yields stall near their
prepandemic highs, investors are wagering that the tranquility
will be short-lived.
Short interest in the $14 billion iShares 20+ Year Treasury
Bond exchange-traded fund (ticker TLT) has climbed to about one-
fifth of the shares outstanding, the highest since early 2017,
according to data from IHS Markit Ltd. Bearish bets have risen
from 7% at the start of 2021 amid the fund’s 13% year-to-date
While the bond selloff that’s hammered TLT appears to have
leveled off with 30-year yields hovering near 2.4% for the
better part of a month, the surge in short bets suggests
investors don’t expect the calm to last long. Though yields have
already moved “significantly” after the market aggressively
repriced a brighter growth outlook, turbulence is likely to
return as economic data is released over the next few months,
according to Principal Global Investors.
“This period of calm is likely short-lived,” said Seema
Shah, the firm’s chief strategist. “We expect investors to
grapple with the higher inflation and growth environment
repeatedly through 2021. Each piece of strong economic and
inflation data will unnerve investors again, driving volatility
Investors have pulled almost $2.6 billion from TLT so far
in 2021, putting the fund on track for the worst year of
outflows since its inception in 2002. Upgraded growth forecasts
and climbing inflation expectations have dragged down long-
duration funds such as TLT and the $40 billion iShares iBoxx $
Investment Grade Corporate Bond ETF (ticker LQD), which posted
its biggest one-day outflow on record last week.
The ICE BofA MOVE Index, a gauge of U.S. bond volatility,
has eased to roughly 62 from a peak of 76 reached in late
February, the highest level in 11 months. While the bond market
is in a “holding pattern” after positioning for much more robust
economic growth, the next catalyst will come from whether or not
the data ultimately deliver, according to Richard Bernstein
Advisors LLC.
“Treasuries have largely priced the current Covid stimulus,
the promise for infrastructure, and an economic recovery,” said
Michael Contopoulos, the firm’s director of fixed income and
portfolio manager. “The next leg will be determined by hard data
— actual increases in inflation, more than just promise for
better days. Over the course of the year and in 2022, we should
expect more volatility and trending higher rates.”

–With assistance from Olivia Raimonde.

February 22nd, 2021 11:42 am


Corporate ETFs and Risk Appetite

January 24th, 2018 7:14 am

Via Bloomberg :

Bond ETFs Awash in Pain May Be Red Flag for Risk Appetite (1)
2018-01-22 14:56:05.415 GMT

By Dani Burger and Sid Verma
(Bloomberg) — U.S. corporate debt exchange-traded funds
have bled a near-historic sum of assets over the past two weeks,
but holders of the underlying securities are paying little heed.
The bonds themselves are enjoying some of the tightest
spreads on record as appetite for new issues remains strong. On
one hand, tax reform, rising oil and global growth may be
fueling demand for yield. Yet the ETFs — in the midst of the
longest outflow streak in at least seven years — point to a
The divergence is stumping Wall Street strategists who use
the ETF market not only as a proxy for investor sentiment in
debt, but also as a gauge of risk appetite for equities and
other assets. Though technical quirks associated with ETF
trading may have caused the dislocation, some analysts point to
a simpler distinction: so-called dumb money versus smart.
“The tax package is probably giving institutional investors
more confidence about the shape of corporate balance sheets,”
said Matt Maley, a strategist at trading firm Miller Tabak + Co.
“Thus they might be making up for the selling that is coming
from these products geared towards individuals, who are worried
about the rise in government yields.”
U.S.-listed corporate bond ETFs are headed for a second
consecutive month of outflows, the first time that’s occurred in
at least seven years. The pain is across ratings. The iShares
iBoxx Investment Grade Corporate Bond ETF, LQD, had the biggest
day of losses last week since 2016, while BlackRock’s high-yield
equivalent, HYG, is in the midst of its biggest two-month
outflows on record.
If the withdrawals are a symptom that retail funds are
losing their taste for fixed-income, the impact could be far-
reaching. A tweet from DoubleLine Capital LP co-founder Jeffrey
Gundlach Thursday — who has previously warned underperformance
may portend a selloff for risk assets — noted the gap between
junk ETF prices and stock gains.
Strategists at JPMorgan Chase & Co. expect individual
investors to be the “wildcard” for bond markets grappling with
diminished central-bank stimulus, while dollar weakness may
curtail foreign inflows to U.S. corporate bonds.
Spreads in junk and investment-grade bonds sit near the
tightest since 2007 even after high-yields premiums rose
slightly. Meanwhile, investors pulled more than $1.9 billion
from U.S.-listed corporate bond ETFs in the week to Jan. 19, the
second consecutive five-day period of outflows.
ETF constituents can differ from benchmarks due to
liquidity and other portfolio constraints, so some technical
factors may be at play. LQD, for example, has greater
sensitivity to interest-rate risk, with a modified duration of
8.7 years, compared with 7.6 years for the broader Bloomberg
Barclays U.S. Investment Grade index.
“It looks like constituents — either maturity, credit or
liquidity differences between the two markets — have played a
role, but there does seem to be a general weakening of ETFs
relative to the market,” said Thomas Tzitzouris, fixed-income
research chief at Strategas Research Partners. “At a high level,
we believe that high-yield is running into resistance.”
What’s more, ETFs typically serve as “placeholder” vehicles
in lieu of strategic allocations. Investors, therefore, may be
putting cash into work in the primary market during the January
deluge at the expense of passive instruments.
It’s much faster to make a short, or bearish, bet on an ETF
than through cash bonds, according to Andrew Brenner, the head
of international fixed-income at Natalliance Securities in New
York. Later when traders cover those shorts the ETFs recover, he
“The actual bonds could take a week to move while the ETF
takes 10 minutes,” he said. “But we have seen this before and
the market has held, and then shorts have to grab the ETF so it
In the short-term, the swelling gap between ETFs and the
underlying market may expose some investors to basis risk, or
the peril of hedging bond exposures through passive investments.
“At the very least ‘credit hedge’ products are
underperforming,” Peter Tchir, the head of macro strategy at
Academy Securities Inc., wrote in a note Friday.  “Whether a
precursor to wider weakness or setting the stage for one gap
tighter back to levels closer to pre-crisis levels is the big
question. With the year off to such a great start, I would err
to the side of caution here. ”

To contact the reporters on this story:
Dani Burger in London at dburger7@bloomberg.net;
Sid Verma in London at sverma100@bloomberg.net
To contact the editors responsible for this story:
Samuel Potter at spotter33@bloomberg.net
Cecile Gutscher, Natasha Doff

Margin Debt

December 28th, 2017 12:41 pm

Via Bloomberg;

Margin Debt Ratio at NYSE Rises To Most Speculative Since 2003
2017-12-28 14:07:01.421 GMT

By Bloomberg Automation
(Bloomberg) — Net debt in New York Stock Exchange customer
margin accounts rose to 1.03 percent of companies’ market
capitalization in November, the most in data going back to 2003
and a signal that traders became more speculative.
* Net margin debt, or debits in the accounts minus cash,
increased to $286.9 billion in November from $269.7 billion in
the prior month.
* October’s total represented 0.99 percent of the companies’
market cap.
* The margin ratio was 0.8 percent in November a year earlier.
* Leverage tends to rise and fall with the market’s value.
Margin borrowing exceeding cash indicates more speculation,
while cash greater than debt suggests greater investor caution.
The last time the accounts held more cash than debt was in
December 2011.

| November | October
Margin account debts|$580.9 B |$561.4 B
Cash account credits|$140.9 B |$140.0 B
Margin account | |
credits |$153.2 B |$151.7 B
Net margin debt |$286.9 B |$269.7 B
NYSE Market Cap |$27.8 T |$27.2 T
Net margin debt to | |
market cap ratio | 1.03%| 0.99%
The NYSE releases margin balances as of the end of the
month. Bloomberg’s market cap ratio is calculated as of that

Nary a Whiff of Inflation Here

October 14th, 2017 11:07 am

Via Bloomberg:

Cleveland Fed Oct. 10Y Inflation Expectations Rose to 1.89%
2017-10-13 18:11:10.646 GMT

By Alex Tanzi
(Bloomberg) — Suggests inflation expectations of less than
2% on average over the next decade, according to the Cleveland
* One year inflation expectation at 1.95% v 1.74% a year ago
* 5Y inflation expectation at 1.81% v 1.59% a year ago
* 10Y inflation expectation at 1.89% v 1.70% a year ago
* 20Y inflation expectation at 2.07% v 1.93% a year ago
* 30Y inflation expectation at 2.20% v 2.09% a year ago
* The Federal Reserve Bank of Cleveland’s inflation expectations
model uses Treasury yields, inflation data, inflation swaps, and
survey-based measures of inflation expectations to calculate the
expected inflation rate (CPI) over the next 30 years.

To contact the reporter on this story:
Alex Tanzi in Washington at atanzi@bloomberg.net

To contact the editors responsible for this story:
Alex Tanzi at atanzi@bloomberg.net
Kristy Scheuble

Credit Alert in Big Bank Earnings

October 12th, 2017 9:42 am

Via Bloomberg:

Bad Omen for Bad Debt in U.S. Bank Earnings
2017-10-12 12:30:38.544 GMT

By Laura J. Keller
(Bloomberg) — Increases for bad-debt provisions could end
up being a theme this earnings season for big U.S. banks.
Citigroup’s provision for credit losses rose 15 percent to $2
billion in the latest quarter, more than expected. Earlier,
JPMorgan reported a disappointing surprise on provisions, too.
It had a 20 percent increase sequentially. This indicates those
who worry about banks’ credit quality have their sign: The
consumer really may be weaker. Perhaps things are turning in
this credit cycle.
For more on Citigroup’s earnings, read our TOPLive blog

To contact the reporter on this story:
Laura J. Keller in New York at lkeller22@bloomberg.net
To contact the editors responsible for this story:
Michael J. Moore at mmoore55@bloomberg.net
Anny Kuo, Eric Coleman

Crowded Trade in Corporate Bonds

August 9th, 2017 1:03 pm

Via Bloomberg:

Record Set; Clients Hold the Most Corporate Bonds Since 1999
2017-08-09 16:55:35.338 GMT

By Robert Elson
(Bloomberg) — Client allocations to corporate bonds jumped
to 37.1% in the latest week vs 36.9%, according to the SMR Money
Manager Survey Asset Allocation. The previous high of 37.0% was
seen in June 2017 and also in August 2016.
* The survey began at the low of 19.1% in August 1999
* “Corporate allocations have averaged 36.7% this year, ranging
from 36.2% to 37.1%,” according to SMRA’s John Canavan
* “Over the past five years, corporate allocations have averaged
34.9% of assets, ranging from 32.0% to 37.1%”
* Allocations to GSE-agency debt remains at just 7.5%, the all
time low; allocations to GSEs peaked at 24.4% in 2001

To contact the reporter on this story:
Robert Elson in New York at relson@bloomberg.net
To contact the editors responsible for this story:
Christopher DeReza at cdereza1@bloomberg.net
Rizal Tupaz

Prodigious Corporate Deal

August 8th, 2017 8:58 am

Via Bloomberg:

The Smoking Hot Bond Deal of the Summer Is On Its Way: Gadfly
2017-08-08 10:20:28.782 GMT

By Marcus Ashworth and Mark Gilbert
(Bloomberg Gadfly) — It’s enough to give any treasurer a
smoker’s cough: launching the third-biggest fundraising ever
during the August lull, in an industry that’s been roiled by
regulators, by a company that’s just suffered a two-step rating
Company may raise
$25 billion
Not a problem for British American Tobacco Plc.
It’s in the process of raising $25 billion in what may be
the largest corporate bond offering of the year. The maker of
Lucky Strikes wants to refinance its 42 billion-pound ($55
billion) buyout of Reynolds American — a deal which will give
it No. 1 position in tobacco-related products globally.
The offering should eclipse AT&T Inc.’s $22.5 billion
offering just two weeks ago, which saw investors order as much
as $60 billion of the securities. BAT will want to get orders
for at least as much, if not more.
It shouldn’t be a struggle for a tobacco company. Like
hardened smokers, investors have a craving for yield. So expect
BAT to offer buyers a healthy premium over comparable debt. The
summer slowdown leaves the playing field empty, something that
should play in BAT’s favor.
Deals of this size will feature prominently in the
corporate bond indexes so investors are almost obliged to buy
them — though ethical bond funds will sit this one out. The
extra spread on offer from the new issue also offers tantalizing
out-performance potential in an otherwise moribund credit
With corporate spreads edging ever closer to record lows,
investors are starved of product. Moreover, the European Central
Bank is still buying. It now holds more than 103 billion euros
in corporate debt. The effect on BAT is indirect — the ECB
can’t hold its bonds — but the relative scarcity of equivalent
BBB debt has the effect of tightening spreads on BAT’s bonds.
One fly in the ointment was the two-notch downgrade from
Fitch Ratings on Friday to BBB from A-. This was largely due to
the increased leverage from assuming Reynolds’s debt, but with
free cash flow of more than 2 billion pounds each year, the
ratings company doesn’t have wider concerns on the debt.
Furthermore, the move just brings Fitch into line with S+P’s
BBB+ and Moody’s Baa2 ratings.
Last month, shares of tobacco companies slumped after the
U.S. Food and Drug Administration committed to reducing the
level of nicotine in cigarettes to non-addictive levels. BAT was
down almost 11 percent at one point, its biggest one-day drop
for 17 years, before rallying to end July 28 with a 7 percent
The FDA move, though, may work in BAT’s favor by driving
more Americans to alternative technology such as vaping and
heat-not-burn devices. The global vaping market is worth $12.3
billion, according to data compiled by Euromonitor. North
America accounts for 36 percent of global sales, and Reynolds
has almost as much of the U.S. market for electronic smoking
devices as its next three biggest rivals put together, according
to data compiled by Bloomberg Intelligence analyst Duncan Fox.
With such demand from yield-starved credit investors, BAT
should be able to pull off the deal of the summer.
This column does not necessarily reflect the opinion of
Bloomberg LP and its owners.

To contact the authors of this story:
Marcus Ashworth inLondon at mashworth4@bloomberg.net
Mark Gilbert inLondon at magilbert@bloomberg.net
To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net