Perspective :

Market Commentary | Sept 28, 2021

< Back

Fed's hawkish tone drives yields higher

With the conclusion of the Federal Open Market Committee’s (FOMC) meeting last week, Treasury yields have surged, as taper talk and dot plots indicated a more hawkish tone than the market had anticipated. Yields on the 5-year, 10-year, and 30-year all moved up by 14 to 15 basis points (bps) from the close on September 20th (the day before the Fed began their two-day meeting), through yesterday, September 27th. And rates continue to rise at the time of this writing. Surging commodity prices have likewise helped to push yields higher.

10 Year Treasury Yield

The increase in rates has put pressure on REITs (FTSE NAREIT Equity REIT Index down 4.3%), large cap tech stocks (NASDAQ 100 Index down 2.4%), large caps in general (S&P 500 Index down 1.7%), and of course long-term Treasuries (Bloomberg Treasury 20+ down 1.6%) on a month-to-date basis through the 27th. Also of modest concern for some investors is the debt ceiling showdown. Treasury Secretary Yellen has stated that the Treasury could exhaust its cash by October 18th, and on Monday, Senate Republicans blocked a Democratic bill to fund the government and raise the debt limit.[1] Surely levelheaded thinking, a swell of bipartisan goodwill, and love of country will get us through this impasse (just humor me).

Three quarters into the year, it’s clear that Wall Street has taken full advantage of equity and credit market conditions. As reported by the Wall Street Journal, the IPO (Initial Public Offering) market hasn’t ever been this strong over an entire calendar year, and we still have three months to go.

Breakneck Pace

And buyout related loan issuance hasn’t been this robust since 2007. While loan proceeds are being used primarily to fund M&A activities, in many instances, proceeds have been used to payout dividends to private equity investors.

Buyout Loans

With just a couple of days remaining in the quarter, investors are once again sitting on hefty gains across commodities (Bloomberg Commodity Index +29.2%), REITs (FTSE NAREIT Equity REIT Index +24.6%), small cap stocks (S&P 600 Index +23.4%), and large caps (S&P 500 Index +19.5%) on a year-to-date basis. On the other hand, bond investors are licking their wounds (albeit modest ones), with the Bloomberg US Aggregate Bond Index down about 1.3%. Indeed, it has been a seemingly great time for risk assets.

[1] Wall Street Journal


Past performance is no guarantee of future returns. Performance discussed represents total returns that include income, realized and unrealized gains and losses, but gross of advisory fees. Nothing presented herein is or is intended to constitute investment advice or recommendations to buy or sell any types of securities and no investment decision should be made based solely on information provided herein. There is a risk of loss from an investment in securities, including the risk of loss of principal. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for an s investor’s financial situation or risk tolerance. Diversification and asset allocation do not ensure a profit or protect against a loss. All performance results should be considered in light of the market and economic conditions that prevailed at the time those results were generated. Before investing, consider investment objectives, risks, fees and expenses. Frontier may modify its process, opinions and assumptions at any time without notice as data is analyzed.
Information provided herein reflects Frontier’s views as of the date of this newsletter and can change at any time without notice. Frontier obtained some of the information provided herein from third party sources believed to be reliable, but it is not guaranteed, and Frontier does not warrant or guarantee the accuracy or completeness of such information. The use of such sources does not constitute an endorsement. Frontier’s use of external articles should in no way be considered a validation. The views and opinions of these authors are theirs alone. Reader accesses the links or websites at their own risk. Frontier is not responsible for any adverse outcomes from references provided and cannot guarantee their safety. Frontier does not have a position on the contents of these articles. Frontier does not have an affiliation with any author, company or security noted within. Frontier reserves the right to remove these links at any time without notice.
Exclusive reliance on the information herein is not advised. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Assumptions, opinions and estimates are provided for illustrative purposes only. They should not be relied upon as recommendations to buy or sell any securities, commodities, treasuries or financial instruments of any kind. This material has been prepared for information purposes only and is not intended to provide, and should not be relied on for, accounting, legal, investment or tax advice. Frontier does not directly use economic data as a part of its investment process.
In reviewing the performance information presented here, we recommend that you consider both the returns generated and the level of risk that was assumed in generating those results. We believe that performance information cannot be properly assessed without understanding the amount of risk that was taken in delivering that performance.
Frontier provides model strategies to various investment advisory firms and does not manage those models on a discretionary basis. The performance and holdings of model strategies may vary from strategies managed by Frontier.
Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. The estimates, including expected returns and downside risk, throughout are calculated monthly by Frontier and will change from month to month depending upon factors, including market movements, over which Frontier has no control. They are only one factor among many considered in Frontier’s investment process and are provided solely to offer insight into Frontier’s current views on long-term future asset class returns. They are not intended as guarantees of future returns and should not be relied upon in making investment decisions.
Frontier’s ADV Brochure and Form CRS are available at no charge by request at info@frontierasset.com or 307.673.5675 and are available on our website www.frontierasset.com.
Frontier Asset Management is a registered investment adviser with the U.S. Securities and Exchange Commission; however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made.  Additional information about Frontier and its investment adviser representatives is available on the SEC’s website at www.adviserinfo.sec.gov.
Frontier’s use of external sources in no way be considered an endorsement. Reader accesses sources at their own risk. Frontier is not responsible for any adverse outcomes from sources provided and cannot guarantee their safety. Frontier does not have a position on the contents of site sources. Frontier does not have an affiliation with any author, company or security noted within. Frontier reserves the right to remove these links at any time without notice.
It is generally not possible to invest directly in an index. Exposure to an asset class or trading strategy or other category represented by an index is only available through third party investable instruments (if any) based on that index.
INDEX
INDEX DESCRIPTION
FTSE NAREIT Equity REIT
A free-float adjusted, market capitalization-weighted index of U.S. equity REITs.
NASDAQ 100
Includes 100 of the largest domestic and international non-financial companies listed on the Nasdaq Stock Market based on market capitalization.
S&P 600
Measures the small-cap segment of the U.S. equity market.
S&P 500
Represents US large company stocks. It is a market-value-weighted index of 500 stocks that are traded on the NYSE, AMEX, and NASDAQ
Bloomberg Commodity
This is a broadly diversified index that allows investors to track commodity futures through a single, simple measure. The DJ-UBSCISM is composed of futures contracts on physical commodities.
Bloomberg U.S. Treasury 20+
Measures US dollar-denominated, fixed-rate, nominal debt issued by the US Treasury with 20+ years to maturity
Bloomberg U.S. Aggregate Bond
Market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States.
© Morningstar 2021. All rights reserved. Use of this content requires expert knowledge. It is to be used by specialist institutions only. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied, adapted or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information, except where such damages or losses cannot be limited or excluded by law in your jurisdiction. Past financial performance is no guarantee of future results.

Related Content