Etikett: Jerome Powell

Är det dags att titta på högavkastningobligationer igen?

Federal Reserve Chair Jerome Powell fick kapitalmarknaderna att känna sig glada. Han triumferande efter att ha avgivit ett tal på Economic Club of New York på onsdagen där han lät mer duvaktig om centralbankens avsikt att höja räntorna ytterligare. Skulle Powell vända omkopplaren tillbaka till risk-on för investerare? Är det dags att titta på högavkastningobligationer igen?

Den allmänna konsensusen på marknaderna tycktes tyckas så att Dow Jones Industrial Average steg med 600 poäng vilket också kan ha återupptagit ett intresse tillbaka till högavkastningobligationer, eftersom investerare kan tolka Powells kommentarer att den börsuppgången fortfarade visar livstecken.

För att mätta aptiten för högavkastningobligationer kan investerare titta på börshandlade fonder (ETF) som iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG), ProShares High Yield—Interest Rate Hedged (BATS: HYHG) och WisdomTree Interest Rate Hedged High Yield Bond ETF (NasdaqGM: HYZD).

HYG följer investeringsresultatet för Markit iBoxx® USD Liquid High Yield Index, som består av högavkastande amerikanska företagsobligationer som har lägre än investeringskvalitet. HYHG följer prestanda för Citi High Yield Index och fördelar 80% av sina totala tillgångar i högavkastningsobligationer och korta placeringar i Treasury Securities för att hedga höjda räntor. HYZD försöker följa BofA Merrill Lynch 0-5 Year U.S. High Yield Constrained, Zero Duration Index, vilket ger lång exponering för BofA Merrill Lynch 0-5 år US High Yield Constrained Index, samtidigt som man försöker hantera ränterisk genom att använda korta positioner i amerikanska statsobligationer.

Ett generellt samförstånd

Det generella samförståndet är att en höjning av höjningen i december säkert kommer att inträffa då CME-gruppens FedWatch Tool, en algoritm som beräknar sannolikheten för en höjning av höjningen under en viss månad, nu visar en 82,7% chans att Fed kommer att införa en fjärde räntehöjning i slutet av 2018. Med räntehöjningar och värdepappersföretag som Goldman Sachs som går med i JP Morgan i att sjunga kören av fler räntehöjningar för att komma fram till 2019, skulle efterfrågan på högavkastningobligationer kunna öka.

Att behovet av högavkastande tillgångar skulle kunna stimuleras till ännu mer om ett rally skulle uppstå i amerikanska aktier. Trots att både aktie- och obligationsmarknaden går i takt med sin down-trumma, kan en risk-on-känsla brinna antingen tillgångsklass.

För närvarande verkar marknaderna välkomna Powells senaste kommentarer om ekonomin, eventuellt vinkar de höga avkastningarna.

JP Morgan satsar på Junk bonds

Jerome Powell increases the risk of a FED policy error

Jerome Powell increases the risk of a FED policy error

The announcement of Jerome Powell as the next US Federal Reserve (FED) Governor has the potential to increase the risk of a FED policy error in 2018 and beyond.

The FED has indicated in its economic projections that it expects to raise interest rates by 75 basis points in 2018, so potentially three 25bps rate rises. This is in stark contrast to the futures market pricing, which is expecting only 35 basis points rise in 2018. Recent analysis by Prattle, who ran some algorithms on public statements from potential FED governors, have revealed that he could be significantly more dovish that Janet Yellen. We are cautious on this analysis because the last public statement he made mid-year was a carbon copy of what Janet Yellen was saying at the time, revealing at least that he tends to toe the party line and according to Pantheon Macroeconomics he has never dissented.

“Jerome Powell has never dissented”

Jerome Powell’s formal background and education have not been in economics, rather legal and finance. He expressed his reluctance over implementing a third round of quantitative easing, but he adopts the mainstream view of the FED that gradual rate rises are appropriate. Given his career history and having so far not publicly stated his dissent in meetings suggests he is likely to be more reliant on his team of economists in the Federal Reserve to form opinion, who are known to be generally hawkish. Conversely, there are potentially four vacant regional governorships in 2018, it is likely that these positions will be filled dovish individuals as its very much in the interests of the current political administration to have accommodative monetary policy to help fund tax cutting initiatives against the backdrop of substantial government debt.

Our worry is that this tussle between newly installed doves and a governor more reliant on hawkish economists makes the policy path for 2018 quite uncertain. It also comes at a time when inflationary pressures are likely to build. The labour market suggests the wage pressures are likely to rise significantly in 2018, another element that may require a more hawkish policy path.

Transitory factors such as mobile phone tariffs, medical care costs and air fare costs, all of which have been falling until recently, will begin rolling out of the inflation data in 2018, implying there are far more upside risks to prices.

It is likely that Jerome Powell will pursue a similar path to Janet Yellen in the first half of 2018, but as inflation begins to pick up, a more polarised FED increases the probability of a policy error later in 2018.

James Butterfill, Head of Research & Investment Strategy at ETF Securities

James Butterfill joined ETF Securities as Head of Research & Investment Strategy in 2015. James is responsible for leading the strategic direction of the global research team, ensuring that clients receive up-to-date, expert insight into global macroeconomic and asset class specific developments.

James has a wealth of experience in strategy, economics and asset allocation gained at HSBC and most recently in his role as Multi- Asset Fund Manager and Global Equity Strategist at Coutts. James holds a Bachelor of Engineering from the University of Exeter and an MSc in Geophysics from Keele University.