Category Archives: Bonds

Unrelentless Love for International Equities…..

Ok the ICI has just released their latest dataset for August and there is no abating for International equities buying by US investors and conversely selling of bonds….

This may explains why the 10 years is currently trading close to a 3% handle…It looks like those payroll data may bring some further volatility to this.

As mentioned in my previous posts, I think we are still at the beginning of the spiral and that we have not as of yet seen much change in the velocity of the asset allocation shift taking place, so I believe all fundamentals being equal there are some good opportunities that remain in my scenario… I am still adding on my equity portfolio and ponder about the future effect of an unavoidable bond market crash…and yes I still think the dollar will weaken as those flows amplify and the appetite for international equities accelerate….

Quick Update on US Mutual Funds Flows…

Ok I have to admit last month was not as rosy as the previous 9 months if you invested in equity markets, but clearly this is not a disaster unless your time horizon is that short.

The good thing is that despite the short term underperformance of stocks the appetite for global equities and the hatred for bonds is relentless as seems to indicate the latest release of the ICI data.

Bearing in mind the overall size of the US Mutual Funds market and the outstanding disproportionate bond holdings this should be comforting to the equity bulls. Even more comforting is that all my equity risk metrics and my regime switching model give a green flag for holding equities.

Of course there is Syria, the forthcoming discussion (or speculations) of tapering at the September Fed meeting as well as the German election to potentially exacerbate financial markets risk premium. However September is generally a month where liquidity comes back and this tends to dilute market risk….my bet is for a good old fashioned year end rally…sit tight !

Bond Managers , Tin Hat on Please !

Ok the latest ICI data on US mutual fund has just been released and guess what ? moms and pops are still selling bonds like it is going out of fashion and buying equities like there is no tomorrow. Hence the red squares on my chart that shows the T-Stats of the inflow/outflow for each asset buckets over diverse time horizons. …and yes those 10 year bond yields are still going higher and further incentivising the laggards to come out of their bond holding….

To the risk of repeating myself we all know that there is a massive overhang in bond holdings, so my contention is that we may have entered a spiral and that somewhere on the line we are going to see a repeat of 94…..a good old fashioned bond market crash….

Meanwhile as we gathered from the Fed minutes everyone is getting very cagey about mentioning when they will start tapering (or is it tampering…) ….looks like the street is about to dictate the Fed monetary policy by jettisoning those low yielding assets for something more sexy…..