Yellen & The Dash for Trash Offering Higher Yields

Posted by Mark Jasayko, CFA, Portfolio Manager

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Rwandan Government 10-year Bond Yields
US Real-Estate Income Trust Performance
High Yield Bond Performance Despite a Bond Bear Market

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! (

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.

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