When debt yields were lower, some bond investors looked at buying equities with relatively high dividend yields, to earn income while also potentially generating gains from shares getting more valuable. Now it might make sense to consider the opposite trade: earning higher yields on bonds and getting the downside protection the debt securities can offer, JPMorgan strategists wrote in a note on Tuesday.
“By rotating an equity that has outperformed to a fixed-income security on the other side, you are locking in that yield until the maturity of the security,” Nathaniel Rosenbaum, JPMorgan U.S. high grade strategy analyst, said in a phone interview on Tuesday. JPMorgan strategists said that the bank remains positive on both investment-grade risk premiums and equities now, but added that some investors are looking to protect their downside. The Federal Reserve started hiking rates in March for the first time since 2018 as it tries to get inflation under control. U.S. equities have lost 12.4 per cent this year through Monday’s close after accounting for dividends.
JPMorgan listed a series of potential trades for investors to consider, screening for equities that had gained so far this year, a sign that they may have less upside if the market broadly rebounded. It also looked for companies with relatively high dividend yields, at least three per cent, and whose bonds yielded even more. Among the companies it lists are Public Service Enterprise Group Inc. and Kellogg Co.
Investors continue to flock to the U.S. leveraged loan market, viewing the floating-rate product favourably in light of imminent rate hikes and white-hot inflation. Leveraged loans are outperforming most other asset classes so far this year. A group of banks led by Wells Fargo & Co. is discussing with investors potential changes for a struggling junk bond deal for medical device manufacturer Bioventus Inc. in a bid to draw more demand.
You only really lose money on a fall if you sell.
I'm not selling my moon tickets for all Putin's gold
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