World Renowned Trader’s Tips Revealed
Markets are on edge.
A one week loss of $916 billion in the global bond market.
The Bloomberg Barclays Multiverse Index of global investment grade and high yield bonds slumped by nearly $1 trillion last week in the biggest sell off since Trump’s election in 2016.
U.S. bond prices were hit particularly hard, sending yields soaring higher in the process.
An unfriendly combination of rising inflation – particularly wage inflation – plus an aggressive Federal Reserve telegraphing more rate hikes to come, is conspiring to drive bonds to the worst returns since 1976.
The main culprit driving bond yields higher is strong economic data. Including the September jobs report last Friday, which showed wage growth accelerating to a 3% pace year over year.
Long-term Treasury bond prices have plunged about 10% year to date, as measured by the iShares Barclays 20+ Year Treasury Bond ETF (TLT). Corporate bonds have stumbled as well.
The good news is that bonds are now oversold after the sell off in recent weeks. A bounce for bonds could provide some relief for stocks, not to mention short-term profit opportunities for nimble investors in certain fixed-income sectors.
Here’s a case-in-point: While Treasury bonds (TLT) have tumbled 10% this year, higher riskier junk bonds are down only 3.3%. This is telling because if fears of higher interest rates and a slowing economy were rampant, then risk-free Treasury bonds would not be down 3-times more than high yield junk bonds.
For more evidence, look at bond-proxies, such as utility stocks.
The Vanguard Utilities Index ETF (VPU) is up over 4% year to date and utility stocks have gained over 10% in value in the past four months. Meanwhile, Treasury bonds have fallen nearly 5% over the same time frame.
The fixed-income sell off is centered squarely on U.S. government bonds.
Record low yields and growing government deficits are a deadly combination even for supposedly risk-free Treasuries.
I wouldn’t touch them with a ten-foot pole. By contrast, utility stocks yield more than Treasury bonds – in some cases much more – and are trending higher.
Here are two to consider:
Texas utility CenterPoint Energy (NYSE: CNP) yields 4% and has boosted its dividend payout for 13 straight years.
Another is Southern Company (NYSE: SO). The Atlanta based electric utility giant serves 9 million customers and yields an attractive 5.5%
Bottom line: Except for playing an oversold bounce, it’s best to steer clear of toxic Treasury bonds.
In my view, utilities offer you a safer and stronger growing yield in today’s investment climate.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch
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