Overvalued tech stocks are not the largest market risk

2020 ◽  
Keyword(s):  
Market Risk ◽  
Futures Contracts ◽  
High Yield ◽  
Bond Yields ◽  
Content Type ◽  
Junk Bonds ◽  
Financial Position ◽  
The Us

Significance While markets are vulnerable to a sharper unwinding of bullish bets on the tech sector, comparisons with the 2000 dotcom bubble are misguided: Big Tech firms enjoy a stronger financial position now, and the sector is a winner from both the pandemic and the collapse in bond yields. Impacts The prices VIX-linked futures contracts are trading at imply the US election may be the costliest event ever for traders to hedge against. Market measures of US inflation are falling, stoking fears that the recovery will be fragile; the five-year breakeven rate is down to 1.4%. US high-yield, ‘junk’ bonds are under the most pressure since March, suggesting that the volatility could presage a disorderly sell-off.

scholarly journals An Index of the Yields of Junk Bonds, 1910–1955

2017 ◽  
Vol 77 (4) ◽  
pp. 1203-1219 ◽  
Author(s):  
Peter Basile ◽  
Sung Won Kang ◽  
John Landon-Lane ◽  
Hugh Rockoff
Keyword(s):  
Twentieth Century ◽  
High Risk ◽  
Corporate Bond ◽  
High Yield ◽  
Government Bond ◽  
Bond Yields ◽  
Middle Years ◽  
Bond Index ◽  
Junk Bonds

We present a new monthly index of the yields on junk bonds (high risk, high yield bonds) for the period 1910–1955. This index supplements the indexes of government bond yields, and Aaa and Baa corporate bond yields economic historians have relied on previously to describe the long-term risk spectrum. First, we describe our sources and methods. Then we show that our junk bond index contains information that is not in the closest alternative, and suggest some ways that the junk bond index could be used to enrich our understanding of the turbulent middle years of the twentieth century.

US energy high-yield bonds spur default risk

2015 ◽  
Keyword(s):  
Interest Rates ◽  
Default Risk ◽  
Oil Price ◽  
High Yield ◽  
Content Type ◽  
The Past ◽  
The Us ◽  
Low Interest Rates ◽  
Investment Grade ◽  
Energy Companies

Subject Impact of the oil price drop on energy high-yield bonds. Significance The over 50% oil price drop since June 2014 is hitting bonds issued by energy companies, particularly those issued by sub-investment grade corporates. The US high-yield bond market has been growing rapidly over the past five years. The shale boom has generated considerable investment, mainly funded through the issuance of these bonds which benefit from historically low interest rates. As the oil price has plunged, the spread over Treasury yields paid by the average issuer in the energy subsector has more than doubled between July and the December 2014 peak. Impacts Yields currently offered by the energy subsector are not far from pricing in a default scenario. Persistently low oil prices will further darken the outlook for the energy subsector and the high-yield market generally. A possible default cycle in the energy sector could accelerate outflows, overstretching the sector further.

Contested Syrian oil will have limited economic impact

2019 ◽  
Keyword(s):  
Exchange Rate ◽  
Private Sector ◽  
Economic Impact ◽  
Economic Benefits ◽  
Oil Fields ◽  
Content Type ◽  
Financial Position ◽  
The Us ◽  
The Exchange Rate

Significance This depreciation reflects the underlying weakness of the government’s financial position. Political and territorial advances in favour of President Bashar al-Assad -- most recently, the deployment of government forces along the Turkish border to the east of the river Euphrates -- have not yielded clear economic benefits. Impacts Sustained political and economic turbulence in Lebanon could further reduce the supply of US currency for the Syrian market. The US presence will complicate the government's reassertion of control over oil fields, but Russia could help resolve this problem. Pressure on business to support the exchange rate, with the threat of 'anti-corruption' investigations, could sap private sector confidence. US sanctions and crises in Lebanon and Iraq will reduce Iran’s ability to contribute to the Syrian economy.

SNB move will accentuate bond-equity divergence

2015 ◽  
Keyword(s):  
Euro Area ◽  
Yield Curve ◽  
Equity Markets ◽  
Bond Markets ◽  
Quantitative Easing ◽  
Bond Yields ◽  
Content Type ◽  
Sovereign Bond ◽  
Advanced Economies ◽  
The Us

Significance The move mainly aims to pre-empt the widely anticipated launch of a sovereign quantitative easing (QE) programme by the ECB on January 22. However, it will accentuate divergences between bond and equity markets. Sovereign bond yields for most advanced economies are falling to new lows and are increasingly negative at the shorter end of the yield curve, because of deflation fears and lacklustre growth outlooks. Yet equity markets are hovering near record highs, buoyed by the US recovery and expectations of further monetary stimulus in the euro-area. Impacts Bond markets will be driven by deflation fears, while equity markets, especially US stocks, will be buoyed by Goldilocks-type conditions. Market expectations that the ECB will launch a sovereign QE programme will make bond yields fall further. Bond yields will be suppressed by investor scepticism about the ECB's ability to reflate the euro-area economy.

US-induced volatility clouds the 2019 markets outlook

2018 ◽  
Keyword(s):  
Financial Markets ◽  
Focal Point ◽  
Emerging Market ◽  
Bond Yields ◽  
Content Type ◽  
The Us ◽  
Treasury Bond ◽  
Asset Class ◽  
Main Support ◽  
Global Growth

Significance The idiosyncratic vulnerabilities that built up in financial markets in 2018 are morphing into a more pronounced global growth scare, exacerbated by concerns about the US Federal Reserve (Fed) being too hawkish. The combination of slower euro-area and Chinese growth and US monetary tightening is weighing on asset prices and increasing volatility after a year in which almost every major asset class suffered a loss. Monetary stimulus withdrawal is the focal point, as it has been the main support for markets since 2008. Impacts Ten-year US Treasury bond yields are down 50 basis points since April; global growth worries will make such ‘safe havens’ more attractive. Amid the worries, emerging market (EM) equities are up 1.5% from an October 29 low and may be more resilient than in previous downturns. The Brent crude oil price will be to the lower end of 50-80 dollars/barrel in 2019 amid growth and oversupply worries, reducing inflation.

Political uncertainty and the US market risk premium

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Richard P. Gregory
Keyword(s):  
Risk Premium ◽  
Design Methodology ◽  
Market Risk ◽  
The Other ◽  
Political Uncertainty ◽  
Delayed Effect ◽  
Content Type ◽  
Market Risk Premium ◽  
The Us ◽  
Negative Effect

PurposeThe purpose of this study is to examine the bi-directional causality between political uncertainty and the market risk premium in the US.Design/methodology/approachI use a theoretical model to motivate signs and then check signs based on a vector autoregression.FindingsI find that political uncertainty has a small positive, delayed effect on the market risk premium. The market risk premium, on the other hand, has a large permanent, negative effect on political uncertainty.Originality/valueThis is the first research paper to consider the bi-directional effects of political uncertainty on the market risk premium and vice versa. It also finds interesting empirical results.

Negative euro-area bond yield universe will expand

2015 ◽  
Keyword(s):  
Euro Area ◽  
Sovereign Debt ◽  
Bond Yields ◽  
Government Bonds ◽  
Content Type ◽  
Bond Yield ◽  
The Us ◽  
Debt Issuance ◽  
Low Levels ◽  
Lift Off

Subject The euro-area government bonds outlook in the wake of the ECB's QE. Significance Strong demand among investors is pushing down yields on both government and corporate debt to unprecedentedly low levels, creating a rapidly expanding universe of negative bond yields. According to Royal Bank of Scotland (RBS), approximately one-third of euro-area government bonds now trade with a negative yield, including more than 50% of German, French, Dutch and Austrian public debt. Of the ECB's 60 billion euros (65 billion dollars) of monthly bond purchases, about 40 billion euros are estimated to involve government bonds, exceeding net government debt issuance across the euro-area. Therefore, yields are likely to fall further in the short term. Impacts Strong demand for 'safe haven' assets is compressing yields on government and corporate bonds, with negative rates on many securities. About one-third of euro-area sovereign debt is currently trading with a negative yield. The ECB's bond purchases and a relative scarcity in debt issuance will contribute to lower euro-area bond yields further. Persistent fears about growth and inflation will also contribute to lower yields. Negative yields will exacerbate the mispricing of risk, as investors bring forward their expectations regarding the US rates lift-off.

Diversification and market risk exposure of single-listed versus dual-listed ADRs

2016 ◽  
Vol 42 (11) ◽  
pp. 1125-1135
Author(s):  
Javier Rodriguez ◽  
Herminio Romero
Keyword(s):  
Design Methodology ◽  
Market Risk ◽  
Factor Models ◽  
Geographical Region ◽  
Risk Exposure ◽  
American Depository Receipts ◽  
Content Type ◽  
The Us ◽  
Depository Receipts

Purpose The purpose of this paper is to contrast market risk exposure and diversification of single-listed American depository receipts (“ADRs”) with those of dual-listed ADRs from the same geographical region during 2004-2012. Design/methodology/approach The study uses orthogonal returns in two-factor models to infer exposure to the US and ADRs’ home markets. Findings The authors found that both ADR types provide no diversification and are significantly exposed to US market risk. The authors also found that portfolios of both single- and dual-listed ADRs behave significantly differently than their home markets. Originality/value Only several academic papers discuss single-listed ADRs, and to the best of the knowledge, this study is the first to assess their diversification value.

scholarly journals The global price of oil, QE and the US high yield rate

2020 ◽  
Vol 47 (7) ◽  
pp. 1849-1860
Author(s):  
Anastasios Malliaris ◽  
Mary E. Malliaris
Keyword(s):  
Oil Prices ◽  
High Yield ◽  
Practical Application ◽  
Content Type ◽  
Yield Rate ◽  
Us Economy ◽  
The Us ◽  
Short Run ◽  
Practical Implications

PurposeQuantitative easing (QE) allowed the US economy to stabilize and return to slow growth. Oil prices increased to $100 during 2010–2013. Then in June 2014, they plunged again dramatically to $40. The purpose of this paper is to develop and test a model that describes the price of oil as depending on six inputs: Federal assets accumulated by the Federal Reserve during the period of QE, the 10-Year Treasury note rate, the price of copper, the trade-weighted dollar, the S&P 500 Index and the US high yield rate for bonds rated CCC or below.Design/methodology/approachWe use 771 overlapping 52-week regressions to capture short-run oil price dynamics.FindingsWe find that QE was statistically significant only during 2009–2010, while the US high yield rate played a more significant role, both during and after the crisis.Research limitations/implicationsThis paper does not explain the behavior of oil prices prior to 2003.Practical implicationsThis paper emphasizes the role of the high yield rate on fracking technology in financing the extraction and production of oil.Originality/valueThe paper has both the theoretical value for researchers in the area of energy, as well as practical application for the oil industry.

Brexit will accentuate global market distortions

2016 ◽  
Keyword(s):  
Interest Rates ◽  
Global Market ◽  
Bond Yields ◽  
Equity Prices ◽  
Content Type ◽  
Us Economy ◽  
The Us ◽  
The Uk ◽  
Economic Outlook ◽  
The Eu

Subject Outlook for post-Brexit markets. Significance The UK vote to leave the EU is exacerbating distortions in financial markets. Government bond and equity prices are rising, sending contradictory signals about the global economic outlook. Yields on US and German bonds partly retraced their steps last week as initial fears about the consequences of the Brexit vote diminished. However, the yield on ten-year Treasuries remains 20 basis points (bp) lower than on referendum day, June 23, and the S&P 500 index stands close to a record high. The expanding universe of negative bond yields is fuelling investor appetite for risk assets, including equities. Impacts Markets may be underestimating the likelihood of higher US interest rates given recent signals of improvement in the US economy. Demand for safe-haven assets could stay strong, with the price of gold rising 5.6% since the referendum. Heightened uncertainty may mean that the oil price rally is over; it could even reverse given the persistent supply glut.

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