AWTM Newsletter

A New Risk: Lower Pension Funding Raises Debt Levels

Posted by Ian C. Carroll on Sep 22, 2020 5:03:09 PM
  • As bond yields dropped dramatically, so did the funding levels at traditional defined
    benefit pension plans.
  • Lower pension plan funding increases the already elevated levels of debt and provides
    yet another headwind for credit quality.
  • If a company increases its pension plan contributions, this will lower the cash flow
    available to bondholders and capital expenditures, and weaken balance sheets.
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Topics: Investment Strategy

The Bond Market is Addicted to Low Rates

Posted by John E. Kaprich on Feb 3, 2020 7:31:44 PM

I don’t know if the market is just damned drunk on low interest rates or hung over. But, it still hasn't come to grips with: “Why keep interest rates so low when it doesn’t seem to affect growth or inflation?"

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Topics: Investment Strategy

No Recession in 2020; Support Your Risky Assets

Posted by John E. Kaprich on Dec 30, 2019 8:00:00 AM

Predicting the future is a hazardous occupation. No one correctly predicted that the 10-year U.S. Treasury's yield would spike to 3.25% in late 2018, before falling to 1.45% in less than a year. But that's what fixed-income money managers do. We seek to invest for the future by navigating through rugged environments.

Unlike December 2018, when the Federal Reserve was still raising interest rates, Fed tightening is no longer a concern. After three cuts in the Federal Funds Rate over the last six months, concern over what we believe is faulty monetary policy has disappeared.

So as another year ends, and people look to rebalance their portfolios, we offer our outlook for 2020.

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Topics: Investment Strategy

After all the Sturm and Drang, Brexit Will End Up a Non-Event

Posted by Ian C. Carroll on Dec 2, 2019 6:50:08 PM

As portfolio managers trying to make money in a world of economic uncertainty, we are constantly scanning the horizon for the biggest issues that can sway or shock global markets. When the Brexit referendum passed in 2016, it certainly shocked the market, sending haven assets such as US Treasurys into rally mode.

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Topics: Investment Strategy, Brexit

Treasurys Are Not Risk Free

Posted by John E. Kaprich on Nov 8, 2019 10:44:06 AM

The foundation of the U.S. bond market, and the global market in general, is that bonds are less risky than stocks and that U.S. Treasury securities (bills, notes, and bonds) are "risk free."

But the times they are a changing and Treasurys may not be as, "risk free" as people think.

U.S. Treasurys are considered "risk free," because these fixed income instruments don't have any material credit risk; they’re backed by the full faith and credit of the U.S. government. Unlike a corporation, which can go bankrupt and default on its bonds, there's virtually no risk of the U.S. government not paying the principal and interest on its debt.

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Topics: Investment Strategy

ESG Is Not Just a Buzzword at Aware

Posted by Ian C. Carroll on Sep 26, 2019 1:44:59 PM

One of Wall Street's newest strategies is to invest according to Environmental, Social and Governance issues, better known as ESG. It's a way to invest according to a certain ethical philosophy.

"Environmental, social and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights," according to Investopedia.

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Topics: Investment Strategy

Don't Focus on the Noise - The Fed will Stand Pat on Rates in June

Posted by John E. Kaprich on Jun 14, 2019 4:00:00 PM

If you're following the headlines about President Trump's trade dispute with China, and the back-and-forth with Iran, it's easy to get caught up in punditry and assume the worst, which is what bond investors do best. They assume the worst. And because of that, the bond market is expecting a couple of interest rate cuts by the Federal Reserve Open Market Committee (FOMC), the Federal Reserve's policy board, soon.

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Topics: Investment Strategy

Are Triple B-Rated Corporate Bonds the New As?

Posted by Ian C. Carroll on May 31, 2019 2:22:00 PM

In its May Financial Stability Report, the Federal Reserve said rising sales of risky corporate debt is a top vulnerability facing the US financial system.

However, instead of being scared by the Fed report or the accompanying headlines, we've dug a little deeper and see that, at least in the investment grade universe, there is a good balance between value to be had in the market now.

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Topics: Investment Strategy

Don't Fear the Yield Curve

Posted by John E. Kaprich on Apr 17, 2019 8:55:00 AM

I'm John Kaprich, Investment Director at Aware Asset Management; a firm focused on active fixed income management through a broad suite of fixed income products. One such product is the Aware Ultra-Short Duration Enhanced Income ETF (ticker: AWTM), an actively-managed fixed income ETF designed for investors looking for cash-plus solutions.

I’d like to welcome you to the inauguration of a new column discussing topics relevant to the bond market.

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Topics: Yield Curve, Investment Strategy


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