Treasuries the best performers .... at a mighty 1.9pc return

Thursday 1st October 2015

  

Treasuries the best performers .... at a mighty 1.9pc return

Ref : "In Shadow of Fed Liftoff, Treasuries Top All Other Investments" , Bloomberg Markets

In spite of the benign inflation scenario, one instinctively feels that the threat of rate hikes that been with us all year should depress Treasuries markets more than most. It doesn't say much for other investments therefore to read that in an analysis of the performance of US asset classes over the first three quarters of 2015, US Treasuries lead the field with a return of just 1.9pc. Mind you, the other runners in this particular race have been an unusually ropey bunch, and Treasuries do have their "safe-haven" status in their favour.

Stocks : Speculation that China's economy is slowing faster than officials will admit, and the subsequent devaluation of the yuan caused a rout in global equities and a surge in volatility. The S&P 500 Index has fallen 5.3pc this year.

Corporate Bonds : In more "normal" times, one would expect corporate bonds to follow Treasuries pretty closely. In fact, with rates so low but a hike(s) on the horizon, companies have  been rushing to take advantage of the favourable conditions in the debt markets while they still can. Heavy issuance and the resulting increase in supply means that corporates have under performed their governmental cousins, showing a loss of 0.1pc year-to-date.

Junk Bonds : More of the same, except that since many of the energy companies raise money in the high-yield bond market these fellows have also had to cope with the dramatic fall in the price of oil. Performance year-to-date ? - 2.1pc.

Commodities : Ah, one of the stories of an eventful nine months. The oil price slump, and China's slowdown that has lead to falling demand across a range of commodities, means that the S&P Goldman Sachs Commodity Index has dropped 14.1pc this year. There are many different commodity indices, and some of them look considerably worse than that.

So, all in all, a pretty uninspiring tale...... though it might possibly make you feel a little better if you're disappointed with the performance of your own portfolio. It's not been easy.....

LOOK OUT TOMORROW (FRIDAY) FOR SEPTEMBER US EMPLOYMENT DATA :

Non-Farm Payrolls.          :  Consensus +203,000 , previous +173,000

Unemployment Rate.        :  Consensus 5.1pc, previous 5.1pc

Average Hourly Earnings. :  Consensus +0.2pc, previous +0.3pc

Just about the most important monthly data (along with inflation numbers) with regard to Fed decision-making, a strong report would increase pressure on the Fed to hike rates sooner rather than later. In fact, data even approaching consensus estimates for NFP would probably have the hawks saying that the economy is rapidly closing in on effective full employment, so "Act now!"..... which would be fair enough. But if the lack of action in September told us one thing, it was that the Fed are keeping an eye on global concerns as well as domestic.