Posts Tagged ‘scalability’

Is This It?

September 25th, 2024 by Kurt L. Smith

For about eleven months now, bonds have traded higher in price and lower in yield in the most recent correction of the nascent bond bear market. From near 0% interest rates in 2020 to over 5% in 2023 in longer US treasury notes (below 0% to 5.50% for treasury bills), corrections are natural movements in how trends are developed.

While bond prices have rallied, we have also seen stocks hitting new highs as well. Even the Federal Reserve jumped on the bandwagon cutting rates this week to fulfill the promise made last month.

Yet for so much time, for so much work, the rebound in bonds looks pathetic. Most, if not all, of the rally occurred in the final nine weeks of last year. Our favorite long treasury bond, the 1.25% of May 15, 2050, traded at 43.25 on October 20^th, 2023, and just over 55 on December 28^th, weeks later. That’s a nice 27% gain for prescient traders, but a far cry from the 102 on August 6^th, 2020 (all prices and yields per Bloomberg). This is what a bond bear market looks like.

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High Flying Municipals

April 26th, 2024 by Kurt L. Smith

I continue to find worthwhile municipal bonds for clients despite the historically expensive pricing of generic municipal bonds. While treasury securities are at their highest yields (and lowest prices) in over five months, municipal bonds continue their relative pricing superiority.

Packages of municipal bonds, such as mutual funds and exchange traded funds (ETF’s), are priced high relative to their historical averages to treasury securities. Such high prices have helped their performance relative to other fixed income securities.

Today, the ten-year AAA municipal yield of 2.74% is but 59% of the 4.64% of the ten-year treasury note (all yields and prices per Bloomberg). As we have talked about recently, if such spread was even 70% (much less of a historical outlier), municipal yields would need to rise about fifty basis points to 3.25%. Lower actual yields mean municipal bond prices are priced higher, thus contributing to positive performance of late.

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Size Matters

May 6th, 2019 by Kurt L. Smith

Through much of my career in the bond market bigger truly was better. Nobody was bigger or better than Bill Gross of PIMCO. His bond fund was mammoth and if you had something worthwhile to sell, one call to Big Bill was all that was needed to get the deal done. He was legend, true or not.

Big Bill also had quite a tail wind. As the bond bull market began to gather momentum in the early 1980’s, Big Bill was ready. He knew performance would drive growth in assets and he knew the kinds of bonds that would perform well. His record speaks for itself.

During a bull market there should be little reason to sell. I am sure Big Bill culled some of his mistakes from his portfolios through the years, but largely one can buy and hold and never need to sell. Worthwhile performance led to growing assets and more funds available. Eventually the bond matures and this will only add to the money he continued to attract for decades.

Scaling from a small operation to a multi-trillion dollar behemoth, Big Bill and PIMCO, had a plan and executed it. He is more than worthy of the title Bond King. Needless to say his success has been studied and will continue to be studied as a great success in money management.

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Posts Tagged ‘scalability’

Is This It?

High Flying Municipals

Size Matters

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