Friday February 28, 2014
Continued evidence of sluggish economic conditions helped the bond market deliver a second straight month of positive returns in February.
The most recent phase of the rally had a different character than the move that occurred in January. During the first month of the year, concerns about turmoil in the emerging markets, together with signs of slower growth, fueled a "flight to quality" that benefited the rate-sensitive areas of the market (including long-term Treasuries, TIPS, mortgage-backed securities, and municipals). At the same time, the credit-sensitive segments - while positive - came up short in terms of their total return. In February, this relationship changed: a revival in investor risk appetites, along with a substantial gain in stock prices, fueled outperformance for Read More...
Thursday February 27, 2014
The financial markets have a way of confounding expectations, and that has certainly been the case with U.S. Treasuries so far this year. At the close of 2013, the consensus view was that Treasury yields would continue to trend higher in 2014 amid an environment of improving economic growth and Federal Reserve tapering. (Many of these views can be found in the "What the Experts are Saying" section of my 2014 Bond Market Outlook). So far, however, the bearish predications have been way off the mark. After closing 2013 at 3.02%, the yield on the 10-year Treasury had declined below 2.65% on February 27 (as its price rose).
This is a notable development, since it Read More...
Wednesday February 26, 2014
Individual Retirement Accounts (IRAs) are often thought of as being the appropriate vehicle for long-term investments that generate big capital gains. For many investors, however, that may not necessarily be the case. Since income is taxed at a higher rate than capital gains, IRAs can be a wise choice for investments with higher yields.
Consider a high yield bond fund with a yield of 5.5%. In a taxable account, an investor in the 25% bracket only receives an after-tax yield of 4.1%. At the same time, someone who owns the same fund in a tax-deferred account will benefit from the full, 5.5% yield on the fund. Using an IRA to invest in taxable bonds can therefore be a wise choice for those who are looking to minimize the impact of taxes on their investment income. To learn more about this topic, see my article "Should You Own Bonds in an IRA?"
How are Mutual Funds Taxed?
Ten Ways to Lower Your Mutual Fund Tax Bill
Tuesday February 25, 2014
The U.S. economy, being the complex entity that it is, doesn't shift gears in a linear fashion. Instead, it experiences ebbs and flows from month to month and quarter to quarter.
This pattern has been on display in the past six months. During the early to mid autumn, a series of better-than-expected economic reports fueled speculation that the economy had finally emerged from the doldrums and was set for strong growth in 2014. However, a tough winter for most of the United States has put a damper on economic activity. According to Bespoke Investment Group, over 20 million people had experienced snowfall of at least six inches through the end of January - and this doesn't even include the storms that hit the northern part of the country in February.
This foul weather has acted as a major headwind for the economy, since construction, retail sales, and general business activity stalls while people are cozied up in front of the fireplace. The result: Read More...