The bond market is waiting for the Fed
Fed Governor Richard Clarida told Yahoo News on Tuesday: âA time will come in the next few meetings, we will be at a point where we can start discussing reducing the pace of asset purchasesâ¦ 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.
âThe fundamentals are attractive for senior loans,â 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 âbest value,â 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)