Look at financials, strategist says
While most attention has been paid to stocks at the start of 2024, there have been some opportunites for fixed-income investors too.
RBC GAM Head of US Fixed Income Andrzej Skiba joins Yahoo Finance Live to discuss opportunities for investors—specifically fixed income investors—in the current bond market.
Skiba acknowledges that many fixed-income investors were “astonished at the pace of the rally in the last eight weeks of the year [2023],” who may be finding themselves trying to adjust to the current market, adding that “we have moved a long way, so some consolidation is warranted.”
When it comes to what to buy, Skiba notes that financials are more attractive than they have been in a long time, stating “we are looking at a spread differential, a yield differential close to historic wides.” Skiba compares financials to non-financials and has not seen them “this cheap” since 2023. Skiba expects many fixed-income investors to keep and eye out for supply—as it would be an opportunity for them to add to exposure add exposure to this segment of the fixed-income “universe.”
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor’s note: This article was written by Eyek Ntekim
Video Transcript
JARED BLIKRE: Markets are mixed with just about 30 minutes left until the closing bell on Wall Street. And for bonds, we’re seeing the 10 year hover near 4%. We saw some big swings earlier in the session on the heels of that softer than expected reading on wholesale inflation earlier this morning.
Joining us now is Andrzej Skiba. He’s the RBC Global Asset Management head of US fixed income. And thank you for joining us today.
We’ve seen– let’s just begin with the 10 year. We saw that top out at about 5% late last year. We had this incredible rally in bonds that led the yield to dip below 4%. We saw this everything rally in stocks on the back of that. Where are we with regard to that trend right now?
ANDRZEJ SKIBA: Well, thanks for having me. Yes, you have a lot of investors who have been astonished at the pace of the rally in the last eight weeks of the year and trying to make sense of what next steps to take. In our opinion, we have moved a long way. So some consolidation is warranted and that is exactly what we’re experiencing over the recent sessions when it comes to US treasuries, but also credit markets broadly.
JARED BLIKRE: Well, and we just got some big bank earnings today. And I bring that up because the big money center banks are bringing– are going to be offering or selling about $25 billion worth of debt this month alone. We got a lot of other supply coming online. What are the opportunities for investors here in both investment grade and high yield?
ANDRZEJ SKIBA: Well, when you look at the high-grade universe, it’s pretty clear that financials– so bank debt has lagged non-financials significantly over the recent quarters. So we are looking at a spread differential, a yield differential between those two segments close to historic wides. So with the exception of the turmoil that we have experienced in the spring of ’23 with the regional bank crisis, financials have not been this cheap compared to non-financials in fixed income markets. And we know for sure that there are a lot of fixed income investors awaiting the issuance of significant amount of supply in the coming sessions. As banks report earnings, that could be an opportunity for those investors who missed a bit of the party in the back end of last year to add to exposure to this segment of fixed income universe that looks particularly attractive.
