IntroductionHey there, what's going on, all you clever investors from Singapore! It's me, your buddy Iggy, also known as the Investing Iguana, and guess what? I'm back again to bring you another super exciting and informative episode. Now listen up, if you're someone who's really keen on making intelligent choices with your money, you absolutely have to smash that "Like" button below this video. Oh, and don't forget to hit the subscribe button too, because I've got a ton of valuable insider tips and tricks that I'll be sharing. Believe me, you really, really don't want to miss out on any of this awesome content that could help you grow your wealth. So come on, join the fun and let's get financially savvy together! The Bond Market's 2023: Not the Year Anyone ExpectedSure, let's get into it! You know how Wall Street was all excited about 2023, calling it "The Year of the Bond," right? Well, guess what? It hasn't turned out to be that way at all. People who manage big pots of money, known as fund managers, are super confused. They're scratching their heads, wondering what's going on. Even the people who've been doing this for a really long time, like the experts who've seen it all, are saying that this year has been super challenging. It's like they're playing a video game on the hardest level and can't get past it. One of those experts is Lacy Hunt. He's 81 years old and is the top brainy guy, or chief economist, at a company called Hoisington Investment Management. He's been in this money game for about 50 years, which is like forever! And guess what he said? He said that out of all those years, this one has been the trickiest and most difficult. Can you even imagine that? It's like saying this level of the game is harder than any level he's ever played before! Big Banks Rethink Views on U.S. Government BondsAt HSBC Bank, a guy named Steve Major said he made a mistake when he thought that the U.S. government issuing more and more bonds wouldn't really matter. He thought it wouldn't change anything, but now he says he was "wrong" about that. Similarly, another big financial company called Morgan Stanley has also changed its mind. They used to have a strong opinion on these government bonds, known as Treasuries, but now they've decided to take a middle-of-the-road stance, not too excited and not too worried. They're now in a "neutral" position, which means they're neither for nor against these bonds. And guess what? Bank of America, another huge bank, is also in the same boat. They're also taking a neutral position on these government bonds. So, it's like all these big banks are coming to the same conclusion that maybe they need to rethink their views on U.S. government bonds. How a U.S. Treasury Fund Lost Value Due to Rising Interest Rates Alright, let's dive into the numbers a bit more. So, Hoisington's U.S. Treasury Fund, which is like a money pool that people invest in, hasn't been doing so well. It's lost 13% of its value this year alone, and that's after it already went down by 34% last year in 2022. Yikes, that's not good! Now, you might be wondering why this happened. Well, the value of Treasuries, which are basically loans you give to the government, went down when it looked like the fighting between Israel and Hamas was calming down. But here's the twist! The interest rate, or the extra money you get back when you lend money through these Treasuries, for the 10-year US notes jumped up really high to 4.66%. That's almost 80 points higher than where it started at the beginning of this year. So, in simple terms, if you had invested in this fund, you would have seen your money go down quite a bit, and that's mainly because the interest rates went up a lot. Rising Yields and the End of Fed Support: A Recipe for Bond Market LossesWhy Is This Happening? Well, let's break it down. Last year, the reason for financial losses was pretty straightforward. Prices of things were going up really fast, which is called inflation. At the same time, central banks were making it more expensive to borrow money by increasing interest rates. But this year, 2023, things got a bit confusing. Even though inflation slowed down a bit, meaning prices weren't rising as quickly, the US economy was still doing really well. Because the economy was strong, there was still a chance that prices could start going up again quickly. This made people nervous, and as a result, something called "yields" went up a lot. Yields are like the interest you get from lending money to the government by buying their bonds. These yields have gone up to levels we haven't seen since 2007! This is making it look like the market for these government bonds is going to have losses for an unheard-of third year in a row. And here's another twist: The Federal Reserve, which is like the central bank of the United States, isn't buying these bonds to make borrowing cheaper like they used to. So, all the money the US owes, which we call deficits, is now a big deal and people are paying attention to it. It's like when you keep borrowing money but aren't paying it back fast enough, eventually people start to worry. So, that's why things are the way they are now. How Hoisington and J.P. Morgan Brace for a Hard Landing in Long-Term Debt Hoisington's Hunt and his group of experts were always in discussions, trying to figure out if they should make adjustments to their plans for long-term debt, which is basically money they owe that they plan to pay back over a long time. Earlier in the year, they did make some changes by reducing the duration, or the time it would take to pay back the debt. However, it turns out that those changes weren't sufficient. Hunt is warning that a "hard landing" is on the way, meaning that they could face some serious financial challenges soon. Similarly, Bob Michele, who works at J.P. Morgan Asset Management, another big company that deals with money and investments, is also being cautious. He's decided to wait and see how things turn out, letting the "dust settle," or letting the situation become clearer, before he takes any more actions or makes any more decisions. The Impact of a Bad Year of US Bonds on Singaporean InvestorsSo how does a bad year of US bonds affect investors in Singapore, you may ask. A bad year for US bonds can affect Singaporean investors in a number of ways:
The Butterfly Effect: How a Bad Year for US Bonds Can Impact Singaporean InvestorsIn addition to the immediate consequences, a not-so-great year for US bonds can have a ripple effect that reaches all the way to investors in Singapore. Here's how it works: if the returns on US bonds go up a lot, it becomes more expensive for people and companies in Singapore to borrow money. Imagine you're trying to get a loan to buy a new bike, but now you have to pay more to get that loan. The same thing happens to businesses; they might need loans to grow or make new products. When borrowing becomes more expensive, companies might not make as much money as they hoped, and people might cut back on spending. This slows down the economy, kind of like a car going uphill instead of on a flat road. When the economy slows down, companies make less money, and that's bad news for the stock market in Singapore. So, you see, a bad year for US bonds can create a chain of events that ends up affecting Singaporean investors in a big way. That's why it's super important to know what you're getting into when you invest in US bonds. You should be aware of the possible downsides and think about ways to protect yourself, just like you'd wear a helmet when riding your new bike. 4 Ways to Reduce Risk When Investing in US Bonds as a SingaporeanHere are some tips for Singaporean investors on how to mitigate the risks of investing in US bonds:
It is also important to remember that the US bond market is very large and liquid. This means that even if there is a bad year for US bonds, there is still a good chance that you will be able to sell your bonds at a reasonable price. However, it is always important to do your research and understand the risks involved before investing in any asset class. Even though the stock market has been a bit shaky, some people who invest money still really like bonds. Bonds are like a safety net for them, especially if they think the stock market might go down for a long time. But, to be honest, bonds haven't been doing super well for the past three years. Chris Iggo, who is a big boss at a company that helps people invest their money, said, "The last three years have been confusing for bonds." People who weren't sure about investing in bonds now have even more reasons to scratch their heads and wonder if bonds are really a good idea. But Chris Iggo is feeling brave and making a prediction. He says, "Hold on, because next year is going to be awesome for bonds!" So, even though bonds have had a rough time, some people are hopeful that things will turn around and bonds will be a great investment next year. ConclusionIf you found this video helpful, please hit that 'Like' button. It really helps us to understand what kind of content you want to see more of. And don't forget to subscribe! Here at 'The Investing Iguana', we're dedicated to helping you navigate your financial journey with confidence and clarity. And guess what? There's plenty more where this came from! Stay tuned for our upcoming videos, where we'll tackle other interesting financial topics like the best investment strategies, understanding the stock market, and how to make your money work harder for you! As always, we're thrilled to have you as part of our 'Investing Iguana' community. Your support helps us keep producing free content like this. Remember, every 'like', 'share', and 'subscribe' goes a long way! Thanks for joining us today. Keep investing, keep growing, and we'll see you in the next video. Bye for now!
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