Market players relay that investors are scaling back their bets on the high-yield bond market ahead of earnings season and alongside a fifth consecutive session of declines in the equity markets.
FORBES: High-yield bonds pull back ahead of earnings season despite huge ETF inflow
Their dividends have advanced at a compounded annual rate of at least 7% over the last five years, with a minimum estimated yield for the year ahead of 3%.
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At worst, I believe, the high yield market has gotten a bit ahead of improving fundamentals.
Investors also bought government bonds after an earlier selloff drove the yield on German two-year paper up five pips to 1.71% ahead of the meeting while later slumping to yield 1.61%.
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There could be trouble ahead for another increasingly popular yield vehicle, mortgage REITS. If the Fed implements Operation Twist and buys long-term bonds to flatten the yield curve, that could hurt leveraged investors in mortgage-backed securities two ways.
Ahead of the gathering, the yield on Spain's 10-year bonds surpassed the 7% level that forced Greece, Ireland and Portugal to accept bailouts.
However, after including the dividend yield of 14%, the investor will be ahead of the market by 10% and way ahead of a money market fund.
The September bond future added a half point to stand at session highs of 123-22 ahead of lunchtime shaving four pips off the 10-year yield to 2.96% and leaving it within a couple of basis points of the lowest since early December.
The yield on the December 2012 bill future has now risen from 1.38% ahead of the July monetary policy decision to 1.53%.
If the popularity and subsequent issuance of new high-dividend-yield strategies continue apace, investors are likely to suffer, regardless of whether the market continues to march ahead.
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