{"id":51453,"date":"2023-08-22T05:33:01","date_gmt":"2023-08-22T09:33:01","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/why-investors-are-back-to-a-grab-for-yield-according-to-mizuho-strategist\/"},"modified":"2023-08-22T05:33:03","modified_gmt":"2023-08-22T09:33:03","slug":"why-investors-are-back-to-a-grab-for-yield-according-to-mizuho-strategist","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=51453","title":{"rendered":"Why investors are back to a \u2018grab for yield,\u2019 according to Mizuho strategist"},"content":{"rendered":"
\n

The U.S. economy hasn\u2019t stumbled yet, even through the Federal Reserve has jacked up interest rates to a 22-year high. <\/p>\n

That\u2019s a key factor driving a \u201cgrab for yield\u201d in stocks and riskier corporate bonds, according to Mizuho Securities.<\/p>\n

\n

The absence of a broad credit crunch following the failures of Silicon Valley Bank and Signature Bank in March also \u201csuggests it is safe to grab yield, especially if you believe the Fed will be successful in returning inflation to its 2% target in relatively short order, avoiding the need for a recession and\/or a significant deterioration in the labor market,\u201d Thaddeus Strobach, a Mizuho high yield strategist, wrote in a Monday note to clients.<\/p>\n

As evidence of this, yields in the riskiest $1.5 trillion junk-rated portion of the U.S. corporate-bond market climbed to a peak of roughly 8.9% in March, according to Fed data, after the collapse of several regional lenders raised concerns about a larger banking crisis. <\/p>\n

Yields lately have been closer to 8.5%, even though the Fed has continued to bump up its policy rate to its current 5.525%-5.5% range since March to ensure that receding inflation doesn\u2019t flare up again.<\/p>\n

Stocks have slumped in August as long-term Treasury yields have surged, but the S&P 500
\n SPX
\n and Nasdaq Composite Index
\n COMP
\n booking their first gain in five sessions on Monday.<\/p>\n

Goldman Sachs analysts recently said they think there\u2019s room to add to exposure to equities if the U.S. economy stays on a path to a soft landing.<\/p>\n

The benchmark 10-year Treasury yield
\n BX:TMUBMUSD10Y
\n was back to its highest level since Nov. 6, 2007 on Monday, near 4.339%, according to FactSet. The rate makes up a portion of the return offered by junk bonds, plus a spread or premium to help compensate investors for default risks. The spread on the ICE BofA US High Yield Index was last pegged at 4%.<\/p>\n

Falling junk-bond spreads, even for the riskier Triple C class of junk bonds (see chart), point to a willingness among investors to bet on debt-laden companies while getting paid less.<\/p>\n

<\/p>\n

<\/p>\n

<\/p>\n<\/figure><\/div>\n

\u201cSpreads have narrowed even as the speculative default rate has risen from an exceptionally low level,\u201d Strobach wrote. \u201cHowever, default rates,\u00a0at 1.43% in August,\u00a0remain well below what is implied by the tightening standards in the Fed\u2019s senior loan officer survey.\u201d<\/p>\n

This comes as U.S. high-yield funds saw negative $8.7 billion in outflows this year as a percentage of assets under management, according to Goldman Sachs analysts.<\/p>\n

Still, Strobach said a sideways movement in the U.S. dollar
\n DXY
\n also adds to the grab-for-yield strategy, while he expects oil prices, including the price of the U.S. benchmark West Texas Intermediate crude
\n CL00,
\n +0.02%<\/bg-quote>,<\/span>
\n which is near $80 a barrel, to remain near the recent upward end of their recent range.<\/p>\n

The U.S. junk-bond index has long been heavily weighted to the energy industry.<\/p>\n

Related<\/strong>: Stocks might not get trampled by central bank \u2018elephants.\u2019 We were wrong, says UBS CIO<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The U.S. economy hasn\u2019t stumbled yet, even through the Federal Reserve has jacked up interest rates to a 22-year high. That\u2019s a key factor driving a \u201cgrab for yield\u201d in stocks and riskier corporate bonds, according to Mizuho Securities. The absence of a broad credit crunch following the failures of Silicon Valley Bank and Signature […]<\/p>\n","protected":false},"author":1,"featured_media":51454,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-51453","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nWhy investors are back to a \u2018grab for yield,\u2019 according to Mizuho strategist | iFintechWorld<\/title>\n<meta name=\"description\" content=\"The U.S. economy hasn\u2019t stumbled yet, even through the Federal Reserve has jacked up interest rates to a 22-year high. 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