This fall, the Federal Reserve announced its widely anticipated third round of quantitative easing, commonly referred to as “QE3.” The aim of this latest initiative is to keep interest rates low in order to encourage investor risk taking and investment in the economy. Like the two rounds of easing that preceded QE3, the Fed will
Since the 2008 market dislocation, fixed-income investors have been prone to anticipate another major macroeconomic crisis, but there are signs developing that macro risks may be easing and more normal market conditions are taking root.
The Fed has taken extraordinary measures since 2008 to help keep long-term interest rates low through two rounds of quantitative easing, known as “Operation Twist,” followed by a third round of easing that targets the mortgage-backed securities market.
The high-yield sector may offer more attractive returns with potentially lower volatility than equities, based on a comparison of the historical profiles of the two asset classes and analysis of current credit risk conditions. As interest rates rise, bond prices fall. Lower-rated bonds may offer higher yields in return for more risk. Distress in the
Despite the uncertain macroeconomic environment, we continue to believe that a strategy that relies on rates declining further to drive returns is a risky proposition. At current levels, interest rates would not have to increase much in order for investors to start seeing price declines in Treasuries and certain other high-quality bonds that today offer
In the years leading up to the global financial crisis, growth across a number of countries was relatively homogenous. That changed in 2008, as nations implemented markedly different policy responses to the recession. Many emerging economies that sidestepped the debt crisis altogether are now damping down rapid growth, while developed economies continue to experiment with
Generous yield spreads and a low default rate on corporate debt give high-yield bonds attractive investment potential in today’s market. Lower-rated bonds may offer higher yields in return for more risk.
The unusual combination of challenges currently facing financial markets prompts investors to search for historic parallels. We find that today’s monetary and fiscal landscape looks a lot like that of Europe and the United Kingdom in the late 19th century. At that time, Europe had no effective monetary or fiscal policy with which it might
Today’s low corporate default rate combined with attractive credit spreads and equity valuations provide an attractive climate for convertible securities, according to Putnam’s fundamental research.