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Out of the Box: The Allocation of Assets

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Sometimes it is appropriate to sit back and look at where your money is placed. This is a time for reflection and for some serious thinking to be underway. It is often an individual bond or stock that you are considering, but occasionally one should peer at the universe.

NATION 10 Yr Yield 3 Mnth Chng 1 Yr Chng
UNITED STATES 2.393% -26.5% -70.2%
FRANCE 0.292% -24.9% -54.6%
GERMANY -0.097% -20.4% -69.8%
ITALY 2.682% – 8.0%  57.5%
SPAIN 0.900% -32.2% -49.7%
NETHERLANDS  0.092% -11.3% -64.3%
SWITZERLAND -0.412% – 8.8% -47.0%
JAPAN 0.085% – 4.1% -11.8%
CHINA 3.246% +15.0% -45.1%

*All data provided by Bloomberg

Here you see the influence and domination of the world’s central banks at work. The largest economy in the world, and the most liquid bond market, and the yield of the American 10 year is just slightly lower than Italy and China. Italy, by the way, is the sovereign that I find the most troubling. The Italian government, with a debt to GDP ratio of 132%, wants to increase its deficit and exceed the rules of the European Union. Then we have the EU elections commencing in less than a week. Chaos might be just around the corner.

INDEX 3 Mnth Ret 1 Yr Ret
TREASURIES 1.48% 2.25%
U.S. CORPS 3.37% 7.78%
U.S. HY 2.42% 5.85%
MUNIS 3.17% 6.71%
EURO AGG 1.96% 3.53%
ASIAN AGG 0.04% 1.53%
EURO HY 3.00% 1.95%

*All data provided by Bloomberg

What is clear here is that the American bonds markets, still with some of the highest yields, have been outperforming both Europe and Asia. I would say that foreign money is pouring into the United States markets as a much better place to find yield than in other regions of the World. It also signifies to me that the Fed has plenty of room to cut rates, if they decide to do that, because the spread is so wide between our yields and the yields of other areas.

INDEX 3 Mnth Chng 1 Yr Chng
DJIA -0.08% 4.42%
S&P 500 3.63% 5.65%
NASDAQ 5.70% 6.75%
EURO STOXX 50 4.81% -8.56%
CAC 40 4.45% -7.28%
DAX 7.63% -10.25%
FTSE MIB 3.39% -12.81%
SWISS 4.01% 6.76%
NIKKEI 1.48% -7.00%
HANG SENG 1.32% -8.62%

*All data provided by Bloomberg

Now the changes are expressed in Dollar terms, and that should be noted. Here you can also look at the various markets and draw your own comparisons. Again, it is the FTSE MIB, the Italian equity market, which I think is the most dangerous at present. I am avoiding European investment, in either bonds or equities, until after the EU elections are completed.

Mark J. Grant
Chief Global Strategist, Fixed Income
Managing Director
B. Riley FBR Inc.
Mgrant69@Bloomberg.net
U.S. 954-468-2366

Information herein is for general use; is not unbiased/impartial; is current at publication date, subject to change; may be from third parties; and may not be accurate or complete. Opinions are the Author’s, not B. Riley FBR, Inc., or their respective affiliates or subsidiaries. This is not a research report or solicitation or recommendation to buy/sell the subject securities. Investment factors are not fully addressed herein. B. Riley FBR Inc. and their affiliates may have a proprietary position in the subject securities.

Redistribution/reproduction of this material is prohibited.  See additional disclosures at: http://brileyfbr.com/legal/legal_disclosures

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