The financial crisis continues, as banking stocks moved today to new bear market lows ($BKX; top chart). In the wake of zero interest rate policy, however, the search for yield has kept municipal bonds buoyant (TFI; second chart). We also saw nice runups among preferred stocks (PFF; third chart) and high yield corporate bonds (JNK; bottom chart), but both have pulled back as financial issues have retreated.
I recently stressed the importance of catching market themes that reflect the sentiment of dominant market players. The fixed income markets offer a nice view of investor flight to safety (Treasury bond price strength) vs. willingness to assume risk in search of yield. Recent action suggests that, in the face of uncertainty in the financial system, investors will reward safer sources of yield relative to riskier ones. Observing how these segments of the credit markets are trading during the day provides a worthwhile view on trends and turnarounds in investor sentiment.
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2 comments:
Bret, you stated that the high yield instruments you mentioned have pulled back some once financial issues have retreated. Don't you mean that they have been bid up in the absence of financial fear. Since the lows they have rallied nicely, but have pulled back some as fear re-entered into the market.
Hi Philip,
Yes, they rallied off the November lows and now have pulled back, as some risk aversion has re-entered the market.
Brett
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