No. The government can’t currently buy stock in public companies. But the Federal Reserve can buy U.S. Treasury bonds and mortgage-backed securities issued by government-backed entities, like Fannie Mae and Freddie Mac. Expanding the types of securities the Fed can buy would require a change in the current law by Congress.
Some central banks around the globe, notably the Bank of Japan, have purchased stock, usually via exchange-traded funds (ETFs). This raises several conflict-of-interest issues by giving the government a partial (and potentially controlling) stake in private companies. It also puts the government in the position of picking winners and losers, based on how it invests.
Does the COVID-19 pandemic and its economic impact warrant revisiting the long-standing policy that prohibits the U.S. government from investing in public companies? Some say we should reconsider it. And the economic stimulus bill currently moving through Congress has provisions that could give the government a stake in companies that use government-backed loan programs during the crisis.
(0320-0JKP)
We doubt the Federal Reserve will lower the federal funds rate (the rate at which banks lend to each other) into negative territory because the Fed has indicated several times that it doesn’t see that as an "appropriate" policy tool.
However, we've already seen negative T-bill rates for very short-term maturities. The driver behind the drop in Treasury bill rates below zero was safe-haven buying, as investors moved to cash from other asset classes.
For more information, read Could Negative Bond Yields Come to America?
(0320-06YP)
Yes. Historically, investment grade municipal bonds have had a negative correlation—or an inverse relationship—with the stock market and very low defaults rates. So they’re considered defensive assets. In this particular market environment, some municipal bonds haven't performed as usual, with prices falling and yields spiking up. Much of that has to do with the lack of liquidity in markets and extreme flight to safety-buying, which has pushed short-term treasury yields down to zero or into negative territory.
In the long run, we still consider highly-rated municipal bonds to be defensive assets. Periods of extreme stress can cause dislocations in the markets, and this is one of those times. But we don't expect it to last over the long run.
For more information, read Coronavirus Fears Affect the Municipal Bond Market.
(0320-06TY)
Before you sell, have a plan that takes into account how transactions in today’s market could affect your goals and portfolio long-term. If you’re in or near retirement, this includes strategies to help protect against sequence-of-returns risk (the risk of permanently harming your portfolio’s potential growth due to large withdrawals in a down market).
One way to decide which investments to sell is to rebalance your portfolio. By selling overweight positions and buying underweight ones, you may be able to reset your target asset allocation and generate cash at the same time. You can also sell investments you don’t expect to perform well.
If your portfolio is already balanced or you need to generate more cash, consider two more things. First, if you plan to sell assets for a gain, consider selling those you’ve held for a year or more to take advantage of long-term capital gains tax rates (which are usually lower than ordinary income tax rates on short-term capital gains). Second, if you’re selling assets for a loss, remember that you can use those losses to offset gains.
For more information, read When You Have to Sell in a Down Market: How to Make the Best of a Bad Situation.
(0320-0J0X)
In general, higher yields require more risk. The safest investments are Treasury securities and FDIC-insured bank CDs. These investments are considered risk-free, but their yields are very low because the Federal Reserve has reduced its base lending rate to near zero. An investor looking for a higher yield will need to take on duration risk (potential drop or increase in value as interest rates change), credit risk, or both. This means buying a longer-term Treasury security, or a corporate or municipal bond.
Right now, 10-year Treasury yields are under 1%, which probably isn’t high enough to warrant the duration risk for most investors. Corporate bond yields are higher, but in an economic downturn or recession, the risk that the issuer might default on the bond also rises. Municipal bonds may provide somewhat higher after-tax yields for investors in higher tax brackets, but it depends on the maturity and credit worthiness of the issuer.
(0320-0CFB)
Call
Chat
Visit