Contributor: Jess B. Yawitz, Ph.D.
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A Recession Unlike any Other
The longest expansion in U.S. economic history ended in February. March ushered in a recession that will be unlike any other we have seen before. In the last five weeks, 26 million workers have filed for unemployment insurance. That’s more than the total number of jobs that were created in the entire decade-long expansion. The…
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Coronavirus Fear Shocks Global Markets
Coronavirus has sent shockwaves throughout global financial markets. Since mid-February major global equity indices are down by 10-20%, investment grade US dollar credit spreads have widened by 30-50 basis points, and US Treasury yields have plummeted to all-time lows. The driving force behind this market turmoil is fear of the unknown. Nobody can predict how…
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State of the US Consumer in Four Charts
With no shortage of economic uncertainty in the world, it is natural to ask whether the US consumer can continue as the primary engine driving the expansion. Our answer to that question is yes. You’ve no doubt seen many of the well-known statistics describing today’s exceptionally strong labor market. The unemployment rate is at a…
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Monetary Policy in the U.S. is Being Determined by European (Japanese) Financial Markets
As we approach the next Fed meeting in September, expect more chatter on 1) whether they should ease and 2) what the inverted Treasury yield curve is saying about recession risk. Currently, the yield curve is shaped like a saucer. The highest rate is the 1-month bill, the lowest is the 5-year note, and the…
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Go Long!
The Treasury Department is considering issuing an ultra-long bond with a maturity greater than 30 years. The idea was first raised in post-election interviews with then-nominee for Treasury Secretary Steven Mnuchin and formalized last month when Treasury requested a response on the subject from primary dealers and the Treasury Borrowing Advisory Committee (TBAC). Both of…
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Make Funded Status Great Again (Again)
The ongoing equity rally and the rise in Treasury yields prompted us to revisit this analysis. Between yesterday’s close (December 1) and November 10, when we originally calculated these estimates, the yield of the 30-year Treasury increased 15 bps while the MSCI ACWI climbed 0.3% higher. As a consequence, plan sponsors have likely continued to…
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Make Funded Status Great Again
It has been an interesting week. Regardless of your political leanings, Tuesday’s election seems to have already produced another unlikely winner: defined benefit plan sponsors. Between last Friday and yesterday (November 10), the yield on the 30-year Treasury increased 38 bps while the MSCI ACWI jumped 2.2%. This increase in rates and equity prices has…
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There’s Beta in my Alpha! (Part 2)
I received some feedback asking whether the high correlation of managers both to beta and to each other applies to “Aggregate” managers as well. As a brief follow-up to the previous post, I thought I would share results we obtained from the eVestment Analytics database of managers benchmarked to the Barclays Aggregate index. The bottom-line:…
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There’s Beta in My Alpha!
It should surprise no one that many active fixed income managers tend to have systematic beta exposure—meaning, they tend to perform well when the overall credit market does well, and underperform when it doesn’t. For Long Government/Credit managers, the likely explanation for this relationship is that most managers consistently overweight credit. As a result, they…
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Brazil Downgraded to Junk—But It’s Not High Yield!
Brazil’s sovereign debt was recently downgraded below investment grade (IG). Before the downgrade, its index-eligible bonds were included in both the Barclays US Credit Investment Grade Index and the JPMorgan Emerging Market Bond Index, two of the more commonly followed indices. Beginning 1/1/16, these bonds will fall out of the IG index. What happens next…