Yesterday during her Senate confirmation hearings, Janet Yellen, the presumptive next Chairman of the U.S. Federal Reserve, was quoted saying: “There is limited evidence of reach for yield.” I can only assume that Dr. Yellen does not have access to a Bloomberg machine, or is not following the markets, or is not reading my blog comments and tweets! (https://twitter.com/McIverWealth)

In order to assist Dr. Yellen, I will take the opportunity to present a number of pieces of evidence that she has apparently missed.

1.The popularity of Rwandan government bonds is evidence of a reach for yield. Because investors have suffered from interest rate suppression, they have had to venture far and wide to find ways to supplement yield. They have even ventured as far as “frontier markets” such as Rwanda! (That’s right, the agrarian country that is synonomous with savage ethnic cleaning that claimed 100,000s of lives in the 1990s).   As the first chart above points out, investor enthusiasm is such that the Rwandan government 10-years are currently yielding a miserly 7.86% despite being a country that has seen explosive inflationary bursts over the past decade.

2.The popularity of U.S. Real-Estate Income Trusts (REITs) is evidence of a reach for yield. Although as a whole this sector was whipsawed a bit during the first utterance of Fed “Taper Talk” in May, it has largely held onto gains made over the past two years (see second chart above) as investors find it hard to ignore the yields.

3.The popularity of High Yield Bonds is evidence of a reach for yield. In fact, the higher yields from lower quality bonds have been so seductive, investors in these bonds have ignored the fact that the market for conventional safer bonds has been in a Bear Market since July 2012 (see third chart above).

I am a bit surprised that an ocean of Ph.D.’s at the Fed wasn’t enough to help Dr. Yellen with her talking points. However, if she is able to read some of the “tip of the iceberg” evidence about the “reach for yield” that I have presented here, she’ll be a little more prepared then next time she comments on the subject.

The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Limited or its affiliates. Assumptions, opinions and estimates constitute the author’s judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. 

Richardson GMP Limited, Member Canadian Investor Protection Fund.

Richardson is a trade-mark of James Richardson & Sons, Limited. GMP is a registered trade-mark of GMP Securities L.P. Both used under license by Richardson GMP Limited.