why are people piling into US notes?
- Thread starter jasonjm
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Thanks for your reply!!
No I didn't mean the ultras high end stuff, lol just the pedestrian 595k stuff.
http://www.movoto.com/real-estate/homes-for-sale/CA/Los-Angeles/10747-Wilshire-204_08-283623.htm
No I didn't mean the ultras high end stuff, lol just the pedestrian 595k stuff.
http://www.movoto.com/real-estate/homes-for-sale/CA/Los-Angeles/10747-Wilshire-204_08-283623.htm
A: CAPITAL PRESERVATION
Hey! Why is it that WSJ market data showed 6 month t-bills at about 2% not long ago, but when I reinvested a 3 month bill for 6 months I got less than 1.5% from treasury direct? Is the rate different between the secondary market and treasury direct? I thought that our gov't would give me at least 2%. Not that 2% is anything to brag about, but "any port in time of storm," as they say. Now I feel ripped off.
Japan is an even bigger bubble/short, I agree
In reponse to the OP - the simple reason is that other assets are getting screwed, and most institutions limit investment in commodities and foreign currencies (the stuff that is going up). As a result, they are setting us up for a once in a lifetime opportunity to short government bonds - arguably the most overvalued asset class in the world right now.
IMO it's just generals fighting the last war. There were 25 years of falling inflation up until 2007/08. It will take years before institutions finally start to give up on bonds. Probably the 30 year will yield 10%+ before the realisation sets in.
This sets up some great trades though. Wait for VIX 35+ and some serious panic capitulation in stocks, then short US and/or Japanese govt bonds (short the actual bond/ETF, not the future - you want the cash to invest) and invest the proceeds into the respective stock market. Borrowing at 3.5% to invest in stocks at a P/E of 12 or lower (earnings yield of 8.5%) is gonna be a massive multi-year winner.
Looks like your answer is coming today.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aDPbXU6d2t28&refer=home
Samsung Life, Kyobo Shun U.S., European Debt for Korea Bonds
By Kim Kyoungwha
Enlarge Image/Details
July 16 (Bloomberg) -- South Korean life insurers are shunning U.S. and European corporate bonds because of a rising risk of default and plowing money into domestic debt.
Samsung Life Insurance Co., Korea's biggest insurer, is diverting $500 million into 10-year government bonds, said Koo Sung Hoon, head of investments at the company. Kyobo Life Insurance Co., the third-largest, is reconsidering plans to invest the equivalent of $1 billion overseas and may put the money to work at home instead, said Cho Ok Rae, chief of international investments.
``Risks are increasing so we are now rebalancing our fixed- income portfolios, which means we are selling corporate bonds we hold in the U.S. and Europe,'' Koo said this month in an interview in Seoul. ``Corporate default risk will rise.''
The cost of protecting U.S. and European corporate bonds increased in the past two months on concern credit losses at banks will widen, slowing global economic growth. Financial firms worldwide have accumulated about $416 billion in writedowns and losses as the U.S. housing slump deepens. Samsung Life sold all of its U.S. regional bank debt last year, said Koo.
South Korean debt returned 1.9 percent this year, according to an index compiled by HSBC Holdings Plc. U.S. corporate bonds delivered a loss of 1.4 percent, Merrill Lynch & Co.'s Corporate and High Yield Master index shows.
``There's a long, long way to go for the U.S.,'' said Koo. ``Credit ratings are being downgraded and it's very risky for debt holders.''
Credit Risk
Samsung holds $14 billion of foreign assets, mainly corporate debt with credit ratings of A+ on average, according to Koo. That's the fifth-highest investment grade at Standard & Poor's. More than 60 percent of new investment was in domestic 10-year government bonds, he said.
Credit-default swaps on the Markit CDX North America Investment Grade Index of 125 companies increased 2 basis points to 142.5 yesterday, according to broker Phoenix Partners Group in New York. Contracts on the Markit iTraxx Europe index of 125 companies with investment-grade ratings rose 1.5 basis points to 103.75, according to JPMorgan Chase & Co. prices.
Credit-default swaps are financial instruments used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to debt agreements. A rise indicates deterioration in the perception of credit quality. A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.
Diverting Funds
Korean bonds are ``more stable and safer'' than overseas debt even after inflation drove yields to near the highest since 2002, Kyobo's Cho said in an interview yesterday in Seoul.
``We are diverting some of more than 1 trillion won ($1 billion) allocated for overseas investments into the local market,'' Cho said. ``The entire amount may go to local bonds should the second half outlook for overseas markets stay grim.''
The yield on the South Korea's 5.5 percent 10-year note due in September 2017 climbed as high as 6.19 percent this month, before falling to 6.10 percent yesterday. Inflation accelerated to an annual rate of 5.5 percent in June, the fastest in a decade.
Korea Life Insurance Co., the nation's second-largest insurer, intends to ``gradually'' increase funds invested abroad, Kim Yong Hoan, head of global investments, said in an interview in Seoul on July 11.
`Tap Opportunities'
``We are continuing to tap opportunities in overseas markets through hedge funds'' to achieve an annual return of 7 percent, said Kim, whose company has 50 trillion won in assets and 2 trillion won overseas. It will raise money going into hedge funds by $500 million, he said.
Samsung intends to buy $40 million in global distressed assets, including asset-backed securities, over the next five years, said Koo. It favors local debt for most of its new investments.
``We are bearish'' on U.S. and European bonds, he said. ``Even though the liquidity issue is almost over in the financial sector, the impact on consumption and employment will leave the U.S. economy with much slower growth.''