Posted in Charts of the Week, Samples

Another Run at Global Tightening

Central banks are making another abrupt run at tightening. The chart below shows rolling one-year changes in target rates across 50+ central banks (stacked). The thick black line indicates the total sum.

 

Posted in Charts of the Week, Samples

Fixed Income Returns Off To Bad Start In 2018

With U.S. yields on the rise in 2018, it should come as no surprise that much of the fixed income world has suffered on a return basis. The charts below compare current year-to-date returns to returns of previous years. The blue line in each chart denotes 2018 returns, while the gray lines show returns for previous years.

The Barclays Corporate Index is down 3.10% YTD, making 2018 the fourth worst year since the index began in 1974. Only 1984, 1994 and 1996 saw worst returns at this point in previous years.

 

 

The Barclays Financial Corporate Index is down 2.81% YTD. Only 1994 saw lower returns at this point in previous years.

 

The Barclays Baa Aggregate Index, the lowest level of investment grade, is down 3.17% YTD. Only 1994 and 1996 saw worst returns at this point in previous years.

 

The Barclays TIPS Index is down 0.79% YTD, making 2018 the third worst year on record. Only 2006 and 2013 posted bigger losses at this point in previous years.

 

Posted in Charts of the Week, Samples

Tough Road Back for Volatility Focused Funds

Even the stars of the volatility space have had a hard time coming back from the early February volatility spike that wiped some popular short volatility ETFs off the map. The chart below shows total assets in volatility focused ETFs have been roughly flat near $3 billion. Recent growth in leveraged long volatility ETF assets has been offset by steady net outflows from short volatility funds throughout May. 

 

Posted in Charts of the Week, Samples

Corporate Insiders Know When To Go Public

For anyone who has ever considered investing in an IPO, the data from Jay Ritter at the University of Florida may give reason for pause. The blue bars show how much the average IPO goes up from its offering price to its close after the first day of trading. The orange line shows how much those same stocks outperform/underperform the market in the ensuing 3 years (excluding the first day’s return).

IPOs are good if you can get in on the initial offering, but don’t expect outperformance in the years afterwards. The cynic may look at this chart and determine corporate insiders know exactly when to offload a company to the public.

 

Posted in Charts of the Week, Samples

High Yield ETF Volume and Flows Update

The blue line in the chart below shows the 50-day moving average of high yield bond volume currently stands at $7.44 billion.

The green line shows the 50-day value of all high-yield ETF trading. This totals about 30 ETFs with BlackRock’s iShares iBoxx High Yield Corporate Bond ETF (HYG) and Bloomberg Barclay’s High Yield Bond ETF (JNK) accounting for roughly two-thirds of this total.

The red line shows high yield ETF dollar volume as a percentage of underlying cash volume. ETFs now account for 25% of the volume of the cash market. This metric was essentially zero in 2008.

 

 

The chart below shows year-to-date flows into high yield ETFs.

  • The top panel (black) shows the Bloomberg high yield option-adjusted spread (OAS). It is plotted inversely to mimic price.
  • The second panel (blue) shows the cumulative flows into high yield ETFs.
  • The third panel (red) shows the change in assets since January 1 in all high yield ETFs.
  • The bottom panel (green) subtracts the cumulative flows (blue) from total assets (red) to show a running P&L for the year-to-date flows.

Posted in Charts of the Week, Samples

Investment Grade ETF Volume and Flows Update

The blue line in the chart below shows the 50-day moving average of investment grade bond volume. The green line shows investment grade bond ETF volume. The red line shows investment grade ETF volume as a percentage of the underlying cash market.

 

 

The chart below shows the year-to-date flows into investment grade ETFs.

  • The top panel (black) shows the Bloomberg investment grade option-adjusted spread (OAS). It is plotted inversely to mimic price.
  • The second panel (blue) shows the cumulative flows into investment grade ETFs.
  • The third panel (red) shows the change in assets since January 1 in all investment grade ETFs.
  • The bottom panel (green) subtracts the cumulative flows (blue) from total assets (red) to show a running P&L for the year-to-date flows.

 

Posted in Charts of the Week, Samples

Midterm Election Update

The following charts support the idea that the midterms are going to be a lot closer than conventional wisdom suggests.

Earlier this year, Nate Silver’s FiveThirtyEight blog looked at the generic Congressional ballot, in which voters are asked if they were more likely to vote for the Democrat or Republican candidate, without attaching a specific name to the question. Silver’s analysis concluded the Democrats need a 6% to 7% lead in this poll to win the majority in the House, a net pickup of 24 seats. To this end, FiveThirtyEight tracks these polls by weighting them and adjusting them for accuracy. The results of these adjustments are shown below.

The top panel of the chart below shows FiveThirtyEight’s adjusted generic ballot results. The green line in the bottom panel shows the difference (Democrat less Republican). Currently, this spread is at a 6.7% Democrat advantage. 

If FiveThirtyEight’s analysis is correct, it is going to be a late election night for those waiting on returns for a definitive answer on who controls the House.

 

 

This has not gone unnoticed by the bettors at Predictit.org. While the Democrats (blue) are still trading above 50% odds to control the House, their lead over the Republicans (red) is narrowing and at its lowest level since early March.

We view betting markets as an aggregation of consensus opinion into one statistic. While bettors might not get it right (see Brexit and Trump in 2016), they tell us what is expected. For now, bettors think the Democrats will win the House, although their odds of doing so are dwindling.
 

 

The Senate is a different game. Of the 35 seats to be contested this fall, 26 are held by the Democrats while only nine are held by the Republican. This makes it difficult for the Democrats to become the majority as they have to hold 26 Senate seats and have just nine opportunities to pick up a Republican seat.
This is reflected in the betting at Predictit.org. The red line in the chart below shows the odds Republicans hold the Senate according to bettors are at 74% and have been rising over the past month.
 
 

 

Finally, the chart below shows the 5-day average of Trump’s approval rating taken from all available reputable polls. It has been rallying since mid-December before pulling back slightly in the past week or two. Mid-December is when the tax bill passed.
 
 

Conclusion

Finding a relationship between politics and financial markets has been difficult since Trump’s inauguration. Instead, financial markets are justifiably more concerned with interest rates, earnings, inflation, monetary policy and real growth. If politics have played into markets, it has been the large rollback in regulations that have been seen as a positive.

There are several reasons markets may have put the November midterms on the back burner. One is that the election is still roughly 5 months away. Another is that they have largely been expected to fall to the Democrats. If the trends shown above continue to a meaningful degree, perhaps the markets will begin to take notice.

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