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US Municipals: A Tale of Two Markets and a Knight in Shining Armour (Invesco, 6 min read) Invesco sees the rising spread between yields on investment-grade municipal bonds and US high yield as an opportunity for investors. Potential defaults in the municipal market are unlikely given the Fed’s Municipal Liquidity Facility (MLF). [Bullish High Yield Municipal Bonds]
Market Madness in the Pandemic (NY Times, 4 min read) Paul Krugman believes the recent rally in Hertz and US stocks indices was partially encouraged by the Fed, but this optimism has now turned into FOMO (fear of missing out). This reminds him of the ‘dot-com bubble of the 1990s, except on a vastly accelerated timetable.’ [Bearish US Equities]
Bonds No Longer the Go-To for Investors (OMFIF, 4 min read) ‘In addition to no coupon returns, longer maturity, low-coupon bonds are sensitive to changes in yields. Rising government deficits have contributed to increased longer maturity issuance. Both effects have contributed to a substantial rise in the interest rate sensitivity of major bond indices. The sensitivity of US Treasury indices was below 6.5 until 2010 and has now reached 8.7, a 33% increase in risk.’ [Bearish Fixed Income]
How to Identify Market Bottoms (Variant Perception, 5 min read) One leading indicator is the VIX index. ‘Over the past 25 years, you can see that whenever the VIX has been above 30 for more than three months, this has always led to large rallies. It pays to buy panic and fear. In 2002 and 2009, this marked the bottom of the bear market. In 1998 and 2011, it marked an intermediate bottom along the way of a bull market.’ [Bullish US Equities]
Preparing for private-equity exits in the COVID-19 era (Mckinsey, 8 min read) PE exits have fallen 70% YoY globally in May. Firms are now using tactics such as investing in growth areas (i.e. PPE equipment), improving business models (i.e. diversifying revenues to reduce cyclicality) and revamping value creation (i.e. using tech to cut costs) to take advantage of this waiting phase.