Aug 29, 2019

A new era in the war on savers

Illustration: Lazaro Gamio/Axios

Stocks may be the safe asset now. With U.S. Treasury yields in a free fall and the corresponding decrease in U.S. bank savings and money market rates, the S&P 500 dividend yield now pays more than both the 30-year U.S. Treasury bond and the average online savings account, data show.

The result: Investors get a better automatic return holding stocks than they do putting money into historically less risky assets.

What's happening: Expectations for further central bank easing have pushed yields on long-term U.S. Treasury bonds to near all-time lows.

  • Worried about the state of the economy, investors have been shoveling money into safe-haven bonds and savings accounts for much of the last year.
  • But the actions of global central banks and traditional banks are now making that prospect much less attractive.

The Fed's 25 basis point cut last month means savers have seen the interest they earn from online banks fall by approximately 15 basis points to around 1.9%, according to data provided to Axios from savings fintech platform MaxMyInterest.

The intrigue: With the recent plunge in yields pushing the 30-year Treasury bond to a record low of 1.905%, and the 10-year yield below 1.5%, bonds are now riskier than stocks, argues Dev Kantesaria, portfolio manager and founder of Valley Forge Capital Management.

  • "Despite recession fears ... U.S. equities currently offer the best risk/reward opportunity in the marketplace," Kantesaria tells Axios in an email.
  • "The benefits of holding bonds at current near zero interest rates doesn’t compensate investors for the risk that interest rates could rise even modestly from here and cause loss of principal."

The big picture: Online savings accounts currently pay about 20 times more than the average from brick-and-mortar bank savings accounts, and even that is now less than what investors receive from the dividend on S&P 500 stocks.

  • With more than 30% of global bonds paying negative yields, cautious investors are running out of places to hide.

Go deeper

The end of money as we know it

Illustration: Aïda Amer/Axios

The basic principles of investment are being upended, perhaps irreversibly, as the world enters an era of ultra-low and even negative interest rates.

What's happening: American consumers have seen the interest rates they're paid on savings accounts, bonds and CDs tumble this year, and in places where central banks have actually set negative rates — like Japan and the eurozone — some consumers are actually being forced to pay in order to save money.

Go deeperArrowSep 10, 2019

The great bond selloff signals concerns about inflation

Data: U.S. Treasury; Chart: Axios Visuals

Treasury yields jolted higher last week as investors bailed out of safe-haven U.S. government debt, pushing yields up by the most in one week since June 2013. The selloff that began Sept. 4 sent yields on the benchmark 10-year Treasury note from 1.45% to 1.90% in less than 2 weeks.

Why it matters: While some have credited the spike in Treasury yields to renewed faith in the U.S. economy, the market is likely more worried about a return of inflation — a far greater ill for fixed income investors as it corrodes the value of already issued bonds.

Go deeperArrowSep 16, 2019

The biggest week for bond sales on record had perfect timing

Illustration: Rebecca Zisser/Axios

U.S. companies issued $74 billion of investment-grade bonds this week, between Tuesday and Thursday, the most for any comparable period since records began in 1972, Bloomberg reported on Thursday. That nearly doubled the previous record of $40 billion set in 2013.

What happened: Issuers were able to sell into a historically thirsty market, with 30-year bonds from companies like Disney, Deere and Apple carrying record low coupons, and investment-grade bond yields dropping to a 3-year low of 2.77%.

Go deeperArrowSep 6, 2019