Bond Yields Plunge Globally on Slowdown Fears: 5 Safe Picks
On Jul 4, yields on government bonds across the world plunged as likelihood of a global economic slowdown dented investors’ confidence. Consequently, market participants have drained out a massive chunk of money from risky assets like equities to safe-haven sovereign bonds, resulting in plummeting yields. Moreover, a growing number of central banks are giving signals for pursuing easy monetary policy in order to raise inflation and generate economic growth.
Government Bond Yields Plunge Globally
On Jul 4, yield on 10-year U.S. Treasury Note tumbled below 2% to 1.952%, lowest since November 2016. In intraday trading, the yield touched as low as 1.939%. However, yield on 3-month U.S. Treasury Note stood at 2.21%, indicating that a section of government yield has inverted. Several economists consider this yield inversion as an alarm for an impending recession.
In Eurozone, yields on 10-year German and French government bonds plunged to the subzero level of -0.398% and -0.12%, respectively. The yield on 10-year Belgian government bond was also trading in the negative territory. Meanwhile, the Italian 10-year bond yield also dropped to 1.67%, lowest in 14 months.
Tepid Economic Data Worldwide
In the United States, several tepid economic data were released in the past seven days. The ISM manufacturing index in June fell to 51.7 from 52.1 in May. The ISM services index for June dropped to 55.1 from 56.9 in May. U.S. factory orders declined 0.7% in May. Construction spending decreased 0.8% in May. Durable goods orders declined 1.3% in May.
Meanwhile, IHS Markit reported that manufacturing PMI of China, Eurozone (especially Germany), the U.K. and Russia fell below 50, hinting at contraction. In June, the World Bank reduced its global growth projection to 2.6% for 2019. Global business confidence fell to 99.8 in July from 100.8 in July 2018. In January, the IMF also reduced its global 2019 growth rate to 3.5%. Both agencies cited trade conflict, tariff regulation and manufacturing slowdown as major concerns.
Central Banks’ Signal Dovish Monetary Stance
On Jun 18, ECB chairman Mario Draghi gave a strong signal that if the economic condition of the Eurozone deteriorates, the ECB will inject more stimulus either in the form of interest rate cut or further asset purchase.
On Jun 19, Fed chair Jerome Powell removed the term “patient’’ from the FOMC minutes and added that “the FOMC will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion." Investors are considering a rate cut at least by 25 basis points in July and one or two more cuts in the rest of this year.
China’s central bank extended around $40 billion to some commercial banks in April via its targeted medium-term lending facility as it looks to provide struggling smaller business with a steady stream of affordable financing. Meanwhile, Reserve Bank of Australia decided to inject more quantitative easy policies in order to generate growth in its GDP.
Our Top Picks
Under these circumstances, when we are likely to enter a rate cut scenario across the globe, rate-sensitive investments like utilities, REITs, telecom and health care, with strong growth potential, will be prudent. We narrowed down our search to five such stocks, each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows price perfornance of our five picks in the past six months.
Middlesex Water Co. MSEX owns and operates regulated water utility and wastewater systems. It operates in two segments, Regulated and Non-Regulated. The company has expected earnings growth of 10.7% for the current year. The Zacks Consensus Estimate for the current year has improved by 5.9% over the last 60 days.
The Howard Hughes Corp. HHC owns, manages, and develops commercial, residential, and hospitality operating properties in the United States. The company has expected earnings growth of 198.5% for the current year. The Zacks Consensus Estimate for the current year has improved by 369% over the last 60 days.
Ubiquiti Networks Inc. UBNT develops networking technology for service providers, enterprises, and consumers offering high-capacity distributed Internet access, unified information technology and consumer electronics for home and personal use. The company has expected earnings growth of 32.3% for the current year. The Zacks Consensus Estimate for the current year has improved by 4.7% over the last 60 days.
Aptose Biosciences Inc. APTO is a clinical-stage biotechnology company that discovers and develops personalized therapies addressing unmet medical needs in oncology in the United States. The company has expected earnings growth of 29.1% for the current year. The Zacks Consensus Estimate for the current year has improved by 15.3% over the last 60 days.
Aytu BioScience Inc. AYTU is a specialty healthcare company, which focuses on developing and commercializing novel products in the field of hypogonadism, insomnia and male infertility in the United States and internationally. The company has expected earnings growth of 92.1% for the current year. The Zacks Consensus Estimate for the current year has improved by 7.9% over the last 60 days.
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