Zhitong Financial APP learned that for Wall Street,DafabetslotFor the old school, this seems inevitable. When bonds start to offer sizeable yields, people lose interest in venture capital that prevails at zero interest rates.
This is not the case. Although US Treasuries have been brought into full playDafabetslotFor example, for most of April, the yield on two-year Treasuries was close to 5%, but the expected speculative retreat did not occur. Over the past five days, Bitcoin has risen 9%, stocks and commodities have also risen sharply, and some social media posts have led to GMEDafabetslotUs) and AMC (AMC.US) recreate the frenzy of 2021.
Although risk-free interest rates are healthy, they have little dampening effect on other forms of high-yielding investment demand, from exchange traded funds (ETF) with put options to structured products. ETF, which uses derivatives to boost cash returns, attracted $13 billion in new capital in the first four months of this year, according to data compiled by Global X ETFs.
All this is at odds with the theory that prevailed during COVID-19 's pre-epidemic zero interest rate policy (ZIRP). These theories argue that the enthusiasm for speculative assets and complex investment products is a direct result of investors' inability to find alternatives in safer markets.
Edward Park, chief asset management officer of London-based wealth manager Evelyn Partners, said: "whether caused by fiscal stimulus or because interest rates have been low for a long time, there is still a lot of money flowing in the market. Phenomena such as game stations may be just one symptom of this situation, rather than any other reason. "
The resilience of the speculative spirit continues to surprise the market. Just this week, Gary Cohn, the chief economic adviser to former President Donald Trump, argued that the extension of high interest rates prevented investors from taking risks. The main threat now, however, is not excessive pessimism, but that the market is so bullish, from hedge funds to retail investors, that the market may collapse because of its own excessive optimism. The increased concentration of the same stock, coupled with increased investor positioning, means that if something goes wrong, the consequences will soon become apparent, according to a report by Morgan Stanley's trading division on Thursday.
The team, including Christopher Metli and Amanda Levenberg, wrote: "these developments increase the vulnerability of the market and the risks are intertwined-the high overlap between hedge fund bulls and the S & P 500 suggests that the de-risk of any hedge fund is likely to drag down the market as a whole, while any macro shock is more likely to drag down the hedge fund's portfolio."
All major assets, from equities to bonds to commodities, rose this week, ushering in the best market-wide rebound in 2024 as data on weak retail sales and cooling inflation fuelled optimism that the Fed was about to reverse tightening. The S & P 500 rose for the fourth consecutive week, the longest since February, while the Dow Jones Industrial average broke through 40 for the first timeDafabetslot, 000 points.
One sign of increased participation in the over-the-counter market is that trading volume on OTC venues, where computer traders match brokers' order flows, has surged to a record 52 per cent of the market.
"OTC traders are United again in 2024," Scott Rubner, managing director of Goldman Sachs, wrote in a report on Friday. "it's something I have to monitor every day now," he added. "I will check the message board this weekend because holders are looking for a new gamification name for next week."
While the debate over the extent to which US savings are exhausted continues, wallets remain loose among mainly wealthy investors. Almost $12 billion flowed into equity funds in the week to Wednesday, while funds focused on high-yield bonds attracted money for two weeks in a row, according to EPFR Global data compiled by Bank of America.
In the bulls' eyes, financial conditions are not yet tight-the legacy of years of quantitative easing. Of course, the stability of the US economy also supports the case for venture capital.
The theory that explains the persistence of risk appetite holds that the so-called "Fed umbrella" has existed in the market for such a long time that people are still used to thinking that the central bank is ready to act as the savior of the market.
"as long as the option of cutting interest rates exists, we will think that the Fed umbrella is still on the table, which should continue to support risky assets," Mohit Kumar, a strategist at Jefferies Financial Group, wrote in a report on Friday. "
In a Bank of America survey released this week, fund managers showed the highest equity allocation since January 2022, just before the Fed began to raise interest rates. 80% of managers expect interest rates to be cut in the second half of the year-and there will be no recession.
Even in the world of yield products, demand surges in the riskier part of the world, even though u.s. treasury bills (almost equivalent to cash in risk allocation) offer a yield of more than 5%.
Attracted by gains billed as annual returns of more than 100 per cent in some cases, investors are flocking to ETF, which has put options. More than 20 new ETF have gone public this year, and total assets have jumped to a record $81 billion, according to Global X. CBOE Global Markets recently launched a margin relief program to make it easier for traders to write index options contracts.
These products are booming despite the risk that dividends could be swallowed up by the loss of options sold by traders to boost returns.
Adam Phillips, portfolio manager at EP Wealth Advisors, said: "many investors are attracted to these strategies because of their high returns and low volatility. Of course, this income and stability come at a price, and we have seen how these strategies are well below the broader market benchmark."
Meanwhile, us structured product sales rose 20 per cent in 2023 to a record $132 billion and reached $61 billion in 2024, according to structured product intelligence. Many of these complex notes-especially popular in Asia during periods of low interest rates-pay investors coupons by effectively selling stock volatility and may lose money when underlying securities fall below a certain threshold.
As Cullen Roche, the fund's chief investment officer, says, financial advisers are looking for bond alternatives after witnessing a bond sell-off in recent years, and these products are popular.
More than two years after the Fed began to tighten policy, the question now is whether all this will change as investors adapt to a world of high interest rates.
"In theory, monetary policy has a long-term and variable lag effect, and we will see how real this is," Roche said.