The bond market is waiting for the Fed
Fed Governor Richard Clarida told Yahoo News on Tuesday: “A time will come in the next few meetings, we will be at a point where we can start discussing reducing the pace of asset purchases… it will depend on the flow. of data. that we get.
The personal consumption expenditure price index, the Fed’s preferred inflation indicator, is a key item that will be released on Friday. The next report on the consumer price index, which jumped more than 4% in April, and wage data will also be important, Persson said.
In the meantime, it favors, in descending order, leveraged loans, which have floating rates revalued every three months; monitoring of high yield bonds; non-fixed preferred securities, which also have variable rates; and emerging market debt. A recovering global economy supports all four.
“The fundamentals are attractive for senior loans,” said Persson. He expects default rates to decline alongside a recovering economy and continued strong inflows from retail and institutional investors, which totaled $ 21.5 billion in the past 19 weeks, canceling about a quarter of exits in the two years ended December 31, 2020. The S&P LSTA Leveraged Loan Index has a return of 4.3%, higher than the return of the High Yield Bond Index.
In the high yield bond market, Persson says, B-rated bonds represent “best value,” and in investment-quality market it is “comfortable“with BBB rated securities.
Non-fixed preferred securities are well positioned for a rising rate environment as the main issuers are banks and financials which benefit from a steeper yield curve, Persson said.
Pictured: Federal Reserve Building in Washington, DC (Image: Shutterstock)