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Greece Is not out of the Picture for U.S. Investors

Greece: Will They Pay Or Will They Go Now?

The Rieger Report: Puerto Rico Bonds Face Plant

Same-Sex Marriage May Boost Gold Price

The Rieger Report: Municipal Bonds Hold On but Puerto Rico Sinks to New Depths

Greece Is not out of the Picture for U.S. Investors

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Kevin Horan

Director, Fixed Income Indices

S&P Dow Jones Indices

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The yield-to-worst (YTW) on the U.S. 10-year Treasury bond, as measured by the S&P/BGCantor Current 10 Year U.S. Treasury Index, increased by 21 bps and ended 34 bps higher.  At 2.47%, it appeared the optimism over a Greek settlement was justified.  The index has returned -2.90% MTD and -1.94% YTD as of June 26, 2015.  The story changed over the weekend, as Prime Minister Alexis Tsipras surprised all by calling a referendum on whether to accept the European terms.  The eurozone finance ministers rejected Greece’s request for an extension in order to hold a referendum.  As a result, Greek banks have been closed and limiting withdrawals.  The YTW of the U.S. 10-year U.S. Treasury bond opened Monday, June 29, 2015, trading at 2.29% as a result of Greece’s news.

The week’s news affected the S&P U.S. Investment Grade Corporate Bond Index in a similar way, as the YTW rose 13 bps over the week and was 33 bps higher .  The index has returned -2.20% MTD and -1.13% YTD as of June 26, 2015.

High yield, as measured by the S&P U.S. High Yield Corporate Bond Index and the S&P/LSTA U.S. Leveraged Loan 100 Index, which represents speculative-grade senior secured bank loans, was less driven by Europe’s news.  These indices have returned -1.06% MTD and 3.70% YTD, and -0.61% MTD and 2.02% YTD, respectively, as of June 26 & 28, 2015.
YTW ad YTD Returns

 

The posts on this blog are opinions, not advice. Please read our Disclaimers.

Greece: Will They Pay Or Will They Go Now?

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Heather Mcardle

Director, Fixed Income Indices

S&P Dow Jones Indices

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All eyes are on Greece today, as government leaders indicated they will not be making the much awaited €1.7 Billion payment to the IMF.  This comes after banks have been shut, strict capital controls have been set, and after Standard & Poor’s Ratings Services further downgraded Greek debt to CCC- , with a negative outlook.  S&P Ratings said there is a 50% chance Greece will exit the Eurozone.

Greek PM Tsipras has decided to let the people decide via a referendum vote on July 5th.   A “no” vote would indicate rejection of creditors’ latest proposal, likely causing Greece to be forced out of the Eurozone.  While many were thinking that a last minute resolution to this crisis would come through in the 11th hour, Greece’s brazen moves are loudly bursting that bubble of hope.

Some say a Greek exit out of the Eurozone would be significantly less impactful today than a few years ago, yet it’s an increasingly likely reality that, ultimately, no one wants to deal with.  As of Monday, European and US leaders, while acknowledging the lesser impact, are still urging a deal.  Whether or not creditors are willing to relax their demands is another question.  The markets are choosing to play it safe however, and reacting as expected, with the reduction of risk.

Greece’s government bond market took a massive hit on Monday with the S&P Greek Sovereign Bond Index yield widening 471 bps, going from 11.48% on Friday to close at 16.197% on Monday.  Despite Spain’s economy minister trying to reassure the markets that the fear of contagion into Spain is significantly less than three years ago, Spain’s government bond markets declined on Monday as well. The S&P Spain Sovereign Bond Index yield widened 20bps to close at 1.52%.  The S&P Italy Sovereign Bond Index and the S&P Portugal Sovereign Bond Index widened 23bps. Germany, viewed as a bond market safe haven, saw its bond market rally in contrast, with the S&P Germany Sovereign Bond Index tightening 8bps from Friday’s close.

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The posts on this blog are opinions, not advice. Please read our Disclaimers.

The Rieger Report: Puerto Rico Bonds Face Plant

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J.R. Rieger

Head of Fixed Income Indices

S&P Dow Jones Indices

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The municipal bond market reacted yesterday to the Governor of Puerto Rico’s statement about not being able to repay its obligations. Prices of bonds issued by the commonwealth and various authorities tumbled driving a one day drop of over 6% in the S&P Municipal Bond Puerto Rico Index.  That index now reflects a negative 9.12% month-to-date return and negative 8.64% return year-to-date.  The worst monthly performance of this index since 1998 was August 2013 when the index recorded a negative 9.92% return.

General obligation bonds issued by Puerto Rico tracked in the S&P Municipal Bond Puerto Rico General Obligation Index have returned a negative 11.97% for the month-to-date (a record monthly drop in this index).  Yesterday’s one day drop in return for this index was over 6.8%.  Year-to-date the index has recorded a negative 10.5% total return.

The S&P National AMT-Free Municipal Bond Index, an investment grade index which excludes Puerto Rico bond issues was up modestly yesterday in sync with the higher quality bond markets.

Puerto Rico municipal bonds are included in the S&P Municipal Bond High Yield Index and helped drag that index into negative territory yesterday as the index recorded a negative 2.99% month-to-date and negative 1.24% year-to-date return.

Select Municipal Bond Index Yields and Returns:

Source: S&P Dow Jones Indices LLC.  Data as of June 29, 2015.
Source: S&P Dow Jones Indices LLC. Data as of June 29, 2015.

 

The posts on this blog are opinions, not advice. Please read our Disclaimers.

Same-Sex Marriage May Boost Gold Price

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Jodie Gunzberg

Managing Director, Head of U.S. Equities

S&P Dow Jones Indices

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It is well known that wedding seasons, especially in India, support gold prices, and although the tradition of gold embellishments is not as prevalent in the United States, wedding rings are a popular symbol of marriage. So, in light of the U.S. Supreme Court’s ruling on legalizing same-sex marriages in all states, how might this impact the gold market?

From a variety of polls summarized here, there is a range of self-reported same-sex preference in up to 5% of the U.S. population (but possibly greater.) Also in the U.S., there are a reported 59.63 million married couples. If we double that number to account for two wedding rings per couple and take 5% of that, we get a total estimate of 5,963,000 wedding rings for same-sex marriage ceremonies. Given the average wedding ring is roughly 3 pennyweight, the value per 14 karat ring (that is 58.33% gold) is $102.82, using $1,175.10 per troy oz. of gold. Check out different values using this calculator that calculates (price of gold /troy oz * percentage gold * pennyweights in troy oz.) This means that the total estimated gold that might be demanded is $613,088,078.14. That is more than $600 million of gold! Let’s put that into perspective…

According to The World Bank data, it is equivalent in U.S. dollars to more than 5% of the gold reserves in Finland, more than 10% of the value of gold reserves in Greece, more than 20% of gold reserves in Honduras, more than 30% of reserves in Nicaragua and almost 40% of reserves in Ireland. It ranks bigger than 31 countries that reported reserves in 2014.

Given the gold price has been stable since the historically big loss 2013, it will be interesting to see if this wedding season, from the U.S., can help gold shine. Source: S&P Dow Jones Indices

Source: S&P Dow Jones Indices

 

 

The posts on this blog are opinions, not advice. Please read our Disclaimers.

The Rieger Report: Municipal Bonds Hold On but Puerto Rico Sinks to New Depths

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J.R. Rieger

Head of Fixed Income Indices

S&P Dow Jones Indices

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Data as of June 26, 2015:

The investment grade municipal bond market has managed to hold steady with a modest negative return of -0.37% through June 26th 2015.  Investment grade corporate bonds have returned -1.13% during the same period.

High yield municipal bonds have been pulled downward by Puerto Rico but have still managed to eek out a positive return of 0.59%.   Meanwhile, junk corporate bonds have returned 3.7% year-to-date.

Select Fixed Income Index Yields and returns:

Source: S&P Dow Jones Indices LLC.  Data as of June 26, 2015.
Source: S&P Dow Jones Indices LLC. Data as of June 26, 2015.

This past weekend Puerto Rico’s governor has stated the public debt is un-payable.  Last week, the G.O. debt had plumbed new depths helping to record a negative 5% month-to-date return for the S&P Municipal Bond Puerto Rico General Obligation Index. The facts are the situation isn’t looking good: the pending PREPA July 1st default looms on the market, the possible restructuring of the Government Development Bank debt and the possible postponement of G.O. set – asides have sent alarms to G.O. bond holders.

Select Municipal Bond Indices: (Month-to-Date)

Source: S&P Dow Jones Indices LLC.  Data as of June 26, 2015.
Source: S&P Dow Jones Indices LLC. Data as of June 26, 2015.

After years of turmoil, the events in Puerto Rico are beginning to come to a boil.  The impact of defaults on the rest of the bond market, if any, remains to be seen.

 

 

 

The posts on this blog are opinions, not advice. Please read our Disclaimers.