Bond Market Mid-Year Update

Bond Market Mid-Year Update

Bond Market Mid-Year Update
As Expected, the Markets’ Unsung Hero Has Been Singing…Louder Than Stocks!

As July winds down and the Dog Days of Summer (and ridiculously early start dates for schools!) approach, the political conventions have grabbed the headlines and made last month’s Brexit vote for the UK to leave the European Union seem like a fading memory.

In the midst of all that noise, the U.S. Stock Market has been staging quite a tidy little advance, with the S&P 500 index up some 7.72% this year through July 22nd.1  Over a 7% gain in under 7 months…such a stout pace!  Not nearly the top performing asset class for 2016, however: high yield bonds have posted a total return of 12.39% year to date2, on track for their 5th consecutive monthly gain3 and the past 3 weeks have seen some $6.2 billion flow back into high yield bond mutual funds.4

Your intrepid advisor noted that the environment was favorable for such a move in my client letter back in February entitled “Bonds, James Bonds”:

“While the roilings over global growth and the price of oil have dominated financial headlines in recent months, most of the bond market was likewise ebbing in 2015 and may become a “secret agent” in 2016, potentially being overshadowed by the stock market in 2016 even should it strengthen as the economic landscape continues to shift.”
                                                                -- Jeffrey L. Watson, CFP®, Client Letter, February 8, 2016

Why such gains?  In a word: yield.  With the yield on the 10 year U.S. Treasury reaching an all-time low of a mere 1.31% just a couple of weeks ago5 in sympathy with even lower rates in Japan and across Europe, money is searching hard for yield.  Coupled with relatively solid economic news here in the U.S. (jobless claims have remained below 300,000 for 72 consecutive weeks6 and existing home sales reached their highest level in 9 years in June7), this “lower for longer” interest rate environment is persisting; all while the average yield for high yield bonds is still 6.91%.8

Predicting these rapid advances for high yield bonds to continue, are we?

We’re never in the prediction business and aren’t about to start now.  Diversified allocation across various asset classes with constant monitoring and regular rebalancing is still our credo.

We do note, however, that for those balances idling in bank savings accounts or low rate CD’s, a review of alternatives – appropriate to needs for liquidity and time horizons, of course – may just be of “interest!”

As ever and always, call us anytime,

Jeffrey L. Watson, CFP®
WealthCare Financial Group, LLC

1 J.P. Morgan Asset Management, Weekly Market Recap, July 25, 2016

2 J.P. Morgan Asset Management, Weekly Market Recap, July 25, 2016

3 Bank of America Merrill Lynch High Yield Master II Index

4 Thompson Reuters Lipper

5 Federal Reserve Bank of St. Louis:

6 U.S. Department of Labor:

7 National Association of Realtors:

8 J.P. Morgan Asset Management, Weekly Market Recap, July 25, 2016

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