Several related articles prompted a return of this ad-hoc series only after a week.
LINK1 LINK2UP & DOWN WALL STREET. Investment-grade CORPORATES (US & foreign) are now seen safer than respective sovereign debts. Global deficits, spending and debt servicing are rising. The assumption of risk-free Treasuries when US continues to print money is becoming shaky. Corporate spreads are tight because the baseline Treasury yields are rising, and corporate yields are lower due to high demand.
MSFT AAA 10-yr yield (the only other genuine AAA is
JNJ; ignoring tons of artificial AAA securitized credits) is now below 10-yr Treasuries. Some French corporates also have yields below French sovereigns. This phenomenon of negative spreads will become more commonplace. Many corporations are taking advantage of low spreads to issue new debt. US Aggregate Bond Index (
AGG, BND; the so-called US total bond market although it’s only investment-grade) has 50%+ Treasuries (vs 21% in 2007). Just as SP500 has become concentrated in Magnificent 7, the (so-called) US total bond market has become concentrated in Treasuries. Options for low/no Treasuries include (true) total bond market (
IUSB), corporates (
LQD), etc. Central banks have also diversified and now hold more gold than Treasuries.
STREETWISE. QUARTERLY or SEMIANNUAL reporting? It won’t matter if that’s made optional and then the market decides. Formal reporting requirement goes back to 1934 (regulators want to do something after a major crash) and quarterly reporting has been required since 1970 (there was a minor market hiccup then, but did that stop the big dot. com bubble and crash?). So, now there are 3 unaudited 10-Qs and 1 audited 10-K; companies can delay them with permission. President TRUMP made a similar proposal in 2018, but SEC then did nothing beyond holding public hearings – this time may be different (agency heads have rolled for lesser offenses).
Nasdaq is favoring semiannual reporting citing savings. Of course, private-equity/credit saves LOT of money by infrequent or no reporting, and did you hear that it may be going into your 401k? US companies spend 37% on R&D vs only 17% for European companies – will that change by reporting frequency? In Europe, 50% of companies report quarterly, 50% semiannually, so what? Most people may instinctively react negatively to reduced investor information, but how many really dig through 10-Qs and 10-Ks? Reg FD forbids sharing of nonpublic information with selected groups, but some of that goes on and more of that may happen with infrequent reporting. Analysts would still be far off the marks as they are in their annual estimates, sometimes revised several times during the year. A study by Brown U suggested a split system – large companies reporting quarterly, small companies reporting semiannually. Journalist/humorist HOUGH recommends that the best would be no reporting at all, let companies save lot of money and let FOMO and mojo rule (-:)
Comments
INCOME INVESTING/FUNDS. MULTISECTOR BOND funds are riskier but allow exposure to several types of bonds – sovereign, corporates, HYs, EMs. A mix of core and multisector bond funds should be fine for most retail investors. Mentioned are JGIAX, LSBRX, MIAQX, PONAX, TQPAX. (After 12/31/25, LSBRX may have up to 35% in HY and 20% in equity. Hopefully, it will be reclassified as conservative-allocation fund, not as multisector bond fund)
FUNDS. With HY spreads tight (280 bps only), it wasn’t a good time for Vanguard to launch a self-standing active HY ETF VGHY (ER 0.22%, the same as investor VWEHX, not Admiral VWEAX). Vanguard sees it as just filling its ETF line up.
FUNDS. Foreign stocks are outperforming US stocks. Global equity funds as well as several allocation/hybrid funds and TDFs that have foreign stocks are doing well. Death of the old 60-40 turned out to be premature and it’s doing fine now. Mentioned are ETF TGLB; OEFs ABALX, MDLOX, VSMGX.
FUNDS. With lower rates, consider a mix of cyclical stocks (IJR, JRE, XLF; C, CEG, FITB, PNC, VST), defensive stocks (AMLP, XLU, XLV; CPM, CVX, IDA, KO, LLY, PG, PM, UNH, WEC, WELL), US and foreign bonds (HSNIX, PGNPX, VMBS), or allocation/hybrids (none mentioned, but see above). Economic outlook is muddy. Atlanta GDPNow has Q3 at +3.4%, Conference Board at +1-2% (real) is similar.
FUNDS. Where to put CASH? Suggested are T-Bills, money-market funds, ultra-ST bond funds (MINT), ST bind funds (IGSB), ST CDs (Marcus 7-mo 4.15%), online savings account (Barclays 3.9%). (Examples should be takes as “for instance” as there are many other competing choices.)
FUNDS There are lot of mutual-fund-to-ETF conversions. A new crop of ETF classes of funds is also coming (after Vanguard’s patent expired). Reasons are tax-efficiency and lower ERs of ETFs, and much feared frontrunning of active portfolios hasn’t materialized. ETFs also have transparent, semitransparent and nontransparent (almost dead now) structures to suit the needs of sponsors. These conversions may not be good for funds in small and illiquid markets (AFSC is cited as a bad conversion). Several large conversions include DFAC, DFAT, DFAS, DFAX, DFIV, DFUS, DFUV, FELC, JIRE, JMTG. (In related news, SEC will do quick approvals for ETPs based on established commodity futures and that may lead to a surge in new crypto ETPs) (By @lewisbraham at MFO)
(There is also a new SCOREBOARD for funds with weekly and YTD performance data through Thursday from Lipper – Top 25, Bottom 10, Largest 25. Unclear whether this is one-time or a new regular feature.)
RETIREMENT & WELL BEING. If your employer cooperates, try partial retirement first by temporarily reducing the workload or taking a short break (staycation vs vacation). (Unfortunately, some are forced into retirement involuntarily.)
From Friday’s WSJ: ”In another sign this week’s rate cut lifted investor confidence and appetite for risk, the premium that investors demand to hold investment-grade-rated companies’ bonds instead of Treasurys hit its lowest level since 1998.”
In an opinion piece today (WSJ) one observer cites the above as a sign of investor euphoria. Makes a certain degree of sense to me. However, if that money going into IG corporates is money that might otherwise go into stocks, I’m not so sure. Could be a sign of caution.
"In August, taxable-bond funds experienced their largest monthly inflow since April 2021."
"Multisector bond funds brought in their largest monthly inflow on record in August.
Pimco Income’s nearly $200 billion of assets make up nearly half of the category’s net assets
and often drive monthly flows for the category."
"Investors have pulled nearly $87 billion out of US equity funds over the past four months
as investors retreat from growth strategies, even as stock markets hit record highs.
In August, 98% of the $11 billion in monthly net outflows came from growth funds,
while in the past year, the retreat was even more pronounced."
"As gold prices soared to record heights, investors continued to crowd into commodities-focused funds
in August. These funds, which invest mostly in precious metals, gathered more than $6 billion in the month,
pushing 2025’s haul to $31 billion."
https://www.morningstar.com/funds/us-fund-flows-august-bond-funds-stay-hot-while-stock-funds-do-not
State Street strategists note that equity exposure for institutions and U.S. households is at or near record highs.
This information seems to contradict the equity outflows reported by Morningstar.
"Both individual and professional investors tend to increase their stock exposure before the top.
Strategists at State Street noted last month that institutional investors’ exposure to equities
just reached its highest since November 2007, just before a vicious bear market.
Meanwhile, American households’ allocation to stocks has blown past its tech bubble peak."
"Two other signs that investors are throwing caution to the wind: The premium investors require
to own investment-grade-rated bonds hit its lowest since 1998 on Friday and trading volume
on U.S. stock exchanges was just shy of the April record during the Liberation Day panic."
https://marketsam.cmail19.com/t/d-e-gqttty-duklntldl-r/
True. But how often does the Fed start cutting rates "before the top" and push the "top" out well into the future as more people and institutions ride the "lower-rates-means-higher-stocks" trend higher? It sounds like a perfect recipe for another case of Greenspanian 'irrational exuberance' in all sorts of risk assets (equities/crypto especially) I bet.
I'd looked at the Dimensional Funds. These are not conversions but clones. For example, DFAT (US Targeted Value, ER 0.28%) and DFFVX (ER 0.29%) coexist. M* writes: Then there's Dimensional VA US Targeted Value.
That’s from the article today I mentioned but did not cite. In the WSJ it’s captioned: “Black Swan Manager Sees Huge Rally, Then 1929-Style Crash”. Article is partially about hedge fund manager Mark Spitznagel, who has a good record of making money from “black swan” market crashes.
Back to my initial question - Do you think the stampede into IG corporates (and shrinking premium) is a sign of investor appetite for risk? I can see where junk bonds would suggest that. But might the buying of IG bonds represent a move to safety?
I’ve spent a lot of time looking at the ‘07-‘09 debacle. All but the very highest quality of bonds got hit, but government backed (at that time rated AAA) showed nice gains.
BTW - Speaking of market tops … A new book by Andrew Ross Sorkin is coming out Oct. 14. Bloomberg noted it positively over the weekend. Title: ”1929: Inside the Greatest Crash in Wall Street History--and How It Shattered a Nation”
is a sign of investor appetite for risk?"
Not neccessarily.
It may just indicate that investors prefer IG corporates instead of Treasuries despite reduced risk premiums.
The ICE BofA BBB US Corporate Index Option-Adjusted Spread was only 0.93 on 09/19/2025.
This is the smallest spread since November 1997.
https://fred.stlouisfed.org/series/BAMLC0A4CBBB
The ICE BofA Single-A US Corporate Index Option-Adjusted Spread was only 0.61 on 09/19/2025.
This is the smallest spread since September 1997.
https://fred.stlouisfed.org/series/BAMLC0A3CA
The ICE BofA AA US Corporate Index Option-Adjusted Spread was only 0.41 on 09/19/2025.
This is the smallest spread since September 1997.
https://fred.stlouisfed.org/series/BAMLC0A2CAA