GMB Ep #127 – Should You Adjust Your Bond Holdings Since Interest Rates Are Rising?

 

If you’ve been paying attention to the financial markets lately, you’ve probably noticed that interest rates have been increasing, resulting in a decrease in bond prices. Other recent developments, such as Elon Musk’s Twitter acquisition and the decreased performance of popular growth stocks, have a lot of people questioning if it is time to adjust their portfolios. In today’s episode, Grant reviews the relationship between interest rates and bonds, how investors should react to increasing interest rates, and some of the stock price behaviors related to acquisitions.

 

 

Show Notes

[03:30] Market Updates – Grant recaps some of the interesting developments in the financial markets.

[05:26] Growth Stocks – In recent months, some of the popular growth stocks, such as Netflix and Amazon, have not been performing very well. Grant shares his thoughts on the implications of this trend.

[07:18] Bonds and Interest Rates – Grant dives into how the value of bonds fluctuates based on the interest rates and some of the methods used to evaluate bonds.

[13:31] Responding to Interest Rates – How investors should respond to increasing interest rates and why this is not a good reason to sell your bonds.

[20:25] Bond Funds – How bond funds work, differences between stock funds and bond funds, and how to evaluate bond funds.

[27:14] 60/40 Portfolios – Grant shares his thoughts on whether 60/40 portfolios are a good asset class to invest in.

[29:46] Twitter Share Prices – Grant discusses Elon Musk’s acquisition of Twitter, and what this means for investors.

 

Resources

February Market Commentary: Action and Reaction

February Recap and March Outlook

February opened with a strong January employment number as the Bureau of Labor Statistics reported an increase of 467,000 jobs. Instead of reassuring markets after a rough ride in January, it only served to fuel speculation that a strong labor market would lead the Federal Reserve to be more aggressive with rate increases than previously indicated, in its attempts to control inflation. The release of the January average annual inflation number of 7.5% in mid-February proved to be a shock to system.

Overnight, futures markets began pricing in a 50-basis point increase in March, and the two-year U.S. Treasury yield gained 24 basis points. This flattened the yield curve as the ten-year U.S Treasury struggled to get to 2%. The next step after flattening is to invert – which is usually interpreted as a sign of an impending recession. Investors’ worry was that more aggressive Fed rate increases would overshoot and stifle growth.

This was the backdrop as Russia’s saber-rattling in Ukraine, and the West’s telegraphed response of the threat of sanctions, unsettled markets further. And then Russia invaded.

Ukraine Defies Putin, and Defines Heroism

Stiff Resistance Provided a Window for Coordinated Western Action

Ukrainian President Volodymyr Zelenskyy’s reaction to the U.S. offer of help in evacuating his country was the now-famous “I need ammunition, not a ride.” Ukrainian soldiers rejected surrender with “Russian Warship: Go F*** Yourself.” And ordinary Ukrainians stood in front of tanks, or just simply kept going to work, despite the bombs and alarms.

The U.S. and the E.U. responded with incredibly harsh sanctions. The sanctions playbook has been fine-tuned since last fall, and officials in many countries have had time to build the trust needed to impose sanctions that can counteract Putin’s long-honed measures to insulate the Russian economy from the impacts of Russian aggression.

  • Western leaders have frozen the assets of Russia’s central bank, limiting its ability to access $630bn of its dollar reserves.
  • The US, the EU and UK have also banned people and businesses from dealings with the Russian central bank, its finance ministry and its wealth fund.
  • Selected Russian banks will also be removed from the Swift messaging system, which enables the smooth transfer of money across borders. The ban will delay the payments Russia gets for exports of oil and gas.
  • Sanctions are targeting Putin personally, and his oligarchs.

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