War Room 28
This presentation is the property of its rightful owner.
Sponsored Links
1 / 18

War Room 28 March 2012 Fixed Income in 2012: Are Bonds Still En Vogue? PowerPoint PPT Presentation


  • 84 Views
  • Uploaded on
  • Presentation posted in: General

War Room 28 March 2012 Fixed Income in 2012: Are Bonds Still En Vogue?. War Room. Monthly macro discussion Using tools in context Update on HiddenLevers Features Your feedback welcome. Fixed Income in 2012 – Are Bonds Still En Vogue?. Market Snapshot Fixed Income Fundamentals

Download Presentation

War Room 28 March 2012 Fixed Income in 2012: Are Bonds Still En Vogue?

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


War room 28 march 2012 fixed income in 2012 are bonds still en vogue

War Room 28 March 2012

Fixed Income in 2012:

Are Bonds Still En Vogue?


War room

War Room

  • Monthly macro discussion

  • Using tools in context

  • Update on HiddenLevers Features

  • Your feedback welcome


War room 28 march 2012 fixed income in 2012 are bonds still en vogue

Fixed Income in 2012 – Are Bonds Still En Vogue?

  • Market Snapshot

  • Fixed Income Fundamentals

  • Outlook + Scenarios

  • Fixed Income Functionality


Fixed income in 2012 market snapshot

HiddenLevers

Fixed income in 2012:market snapshot


War room 28 march 2012 fixed income in 2012 are bonds still en vogue

Market Snapshot: US Benchmark Rate

The New Normal

US Interest Rates at all time low, and pledge from Fed extended – rates will remain here until mid 2014.


War room 28 march 2012 fixed income in 2012 are bonds still en vogue

Market Snapshot – Fixed Income good stories

Treasuries + Emerging Markets Debt Funds have trounced the S&P 500, without the volatility


War room 28 march 2012 fixed income in 2012 are bonds still en vogue

Market Snapshot – Fixed Income good stories

Many still haunted by Meredith Whitney comments in October 2010 for no reason

Less volatility since the crisis helps folks sleep better


Fixed income fundamentals

HiddenLevers

Fixed income fundamentals


War room 28 march 2012 fixed income in 2012 are bonds still en vogue

Fixed Income: Credit Risk Profiles

Even through financial crisis, credit risk not an issue for investment grade – but CCC and below has 57% lifetime default rate.


War room 28 march 2012 fixed income in 2012 are bonds still en vogue

Credit spreads much narrower than crisis levels

Still above 30 yr average

Further narrowing = upside for HY, Munis, EM debt

Widening = flight back to treasuries

Credit Risk: HY Credit Spreads

Sources: Citigroup + BofA Merrill Lynch


War room 28 march 2012 fixed income in 2012 are bonds still en vogue

How to control duration?

Shorten maturities

Increase yield

Hold to maturity

Floating rate issues

Higher yield considerations

Increased credit risk

Higher correlation to stocks

Interest Rate Risk - Duration

Sources: National Associations of Realtors, Home Builders, and Wells Fargo


War room 28 march 2012 fixed income in 2012 are bonds still en vogue

Interest Rate Risk: Yield Curve

2003 – Last Recovery

1980 – High Inflation

Avg Yield Curve

1977-2011

2006 - Last Cycle Peak

2011- What's Next?

The current yield curve is significantly lower than historical averages, with seemingly little precedent to drop further.

Source: Fidelity


Fixed income in 2012 outlook scenarios

HiddenLevers

Fixed income in 2012:Outlook + scenarios


War room 28 march 2012 fixed income in 2012 are bonds still en vogue

Interest Rates Stay Low – Deflation Worry

  • US Interest rates

  • going nowhere

Bernanke’s worst fear, and the reason for QE


War room 28 march 2012 fixed income in 2012 are bonds still en vogue

Interest Rates Rise – What is the Driver?

Consequences - Growth:

Fed tightens as we get back to normalcy

2. Borrowing costs rise for financial firms, REITs

Bullish for equities as bonds lose luster

Precious metals not as shiny either

  • Consequences - Inflation:

  • Fed forced to tighten to contain inflation

  • 2014 pledge goes bye bye – Fed eats crow

  • Commodities keep rising – push cost of everything

  • Negative impact for equities and bond markets


Fixed income new features

HiddenLevers

Fixed income – new features


War room 28 march 2012 fixed income in 2012 are bonds still en vogue

HiddenLevers - New Features

  • Fixed Income Support

  • Cusips + Options now uploadable

  • Macro Profile for Portfolio – need feedback

  • Coming soon:

  • Scenario Hedging Wizard

  • Excel-type pasting for Add Portfolio


War room 28 march 2012 fixed income in 2012 are bonds still en vogue

CUSIPs now supported in edit portfolio or via portfolio upload

You can also manually enter custom fixed-income or cash-flow investments (including real estate)

How it works:

Interest Rate Risk Modeling: Calculates duration and convexity to model interest rate risk

Credit Risk Modeling: Uses industry/sector or proxy symbol to determine correlations, and uses ratings to determine volatility

Fixed Income Functionality


  • Login