Income Insights

May kicked off with a stunning miss on the previous month’s employment report which came in at a disappointing 266k and confirmed recent anecdotal evidence from across the economy that if the government incentivizes its labor force to stay home, it will do just that.

The convergence of ultra-easy fiscal and monetary policy with global supply chain disruptions, which became ever more prominent as U.S. consumers, having saved around 8% of GDP began to unleash their pent-up demand, resulted in inflation indicators and debates exploding higher.

Following strong performance and record issuance of convertible bonds over the last several years, investors are beginning to take notice of the attractive characteristics of this unique asset class.

Return of capital (ROC) or nondividend distributions are among the least understood type of distribution that investors receive. This is largely because an ROC distribution is a tax concept and not an economic concept, meaning that it tells an investor little about whether the distribution was earned but rather how the IRS will classify this distribution.

The bond market picked up in 2021 where it left off in the fourth quarter of 2020, with the yield on the benchmark 10-year U.S. Treasury rising from 0.93% on December 31, 2020 to 1.75% on March 31, 2021. The dramatic move spelled carnage for fixed-income markets, with the Bloomberg Barclays Aggregate U.S. Bond Index losing 3.4% during the quarter (bond prices move in inverse to bond yields).

Agency mortgages are those that are explicitly or implicitly guaranteed by the government. There are three GSEs (Government Sponsored Entities); Fannie Mae, Freddie Mac, and Ginnie Mae. GSE mortgages and bonds backed by those mortgages have no credit risk, but do have interest rate risk.