Is the Fed Running out of Ammo?….4 Reasons QE3 Unjustified…European Bonds…and more!

Best of the Bond Market for September 12th, 2012

Bond Vigilantes: – Is the Fed running out of ammo? – Is the Fed fighting a losing battle in its attempt kickstart the U.S. economy?  The ‘Bernanke put’ is becoming a lot harder to justify, which could pose problems to both ‘safe haven’ assets as well as risky assets.

Sober Look: 4 reasons QE3 is unjustified in the current environment – Even if QE was justified in 2010 (some would argue it wasn’t), additional monetary expansion certainly can not be justified in the current environment.

WSJ: US Bond managers starting to buy up European debt  – U.S. bond investors are buying risky European government bonds in the wake of a new European Central Bank bond-buying plan to ease financial tensions in struggling euro-zone countries.

MarketWatch: How one CIO is positioning bond allocations in anticipation of QE3 – “We’ve started allocating into more low volatility hedge fund strategies” with a longer-term focus. “Yes, we’re more heavily in equities but we’re not abandoning bonds”.

Cate Long:As muni bond activity declines, new routes to liquidity emerge. – Municipal bond trading volumes are on a downward march. There are several reasons for declining trade volumes, but foremost is the very low level of yields on municipal bonds today. When interest rates and bond yields increase it’s likely that we will also see increased municipal bond trading volumes. If and how trading patterns will change is hard to predict.

PBS:How safe are corporate bonds? – Warnings against bad investment advice. – Are individual corporate bonds a safe place to put your money? Paul Solman gives advice on how to structure your portfolio properly to limit risk and exposure, i.e. don’t put all your eggs in one basket.

Bloomberg: Lack of state support underlines Harrisburg default. – Harrisburg’s plan to skip $3.4 million in payments due this week on $51.5 million of bonds underscores the state’s lack of support for investors in its capital city’s debt, said Fabian, a managing director and senior analyst with Money Market Advisors. He said Rhode Island provided “critical elements” that helped Central Falls bondholders through that community’s bankruptcy.

Learn Bonds:How to choose a municipal bond for income. – Many investors prefer individual municipal bonds over municipal bond funds. What attracts them to individual municipal bonds is the income stability and lack of interest rate risk when individual bonds are bought and held to maturity.

Bloomberg:State-Local Government in best of times for finance. – In a boon to localities still rebounding from the recession that ended three years ago, investors looking for extra yield are adding the most money to longer-dated muni mutual funds since 2009. Those buyers face a shortage as issuers are refunding at the fastest pace since 1993.

ETF Trends:Junk bond ETFs break out as yields hit record low. – Investors continue to embrace risk and yield before Thursday’s highly anticipated Federal Reserve announcement. High-yield ETFs are breaking out again with junk bond yields dropping to record lows.

BusinessWeek: Chesapeake bonds increase most in 7 months. – Bonds of Chesapeake Energy Corp. (CHK) climbed the most in seven months after the energy producer agreed to sell portions of oil and natural-gas fields and other assets to narrow a cash-flow shortfall.

Financial Post:Canadian high-yield bond market safer than U.S. – With interest rates at all time lows, investors are looking for high yields instead. That typically means buying bonds issued by companies that may not have the best looking balance sheets. But Moody’s has some advice for you if do. “When you have a choice of U.S. or Canadian issuers, go for the Canucks.”

Reuters:Citigroup must pay investor $1.4 million for fund loss. – Citigroup must pay more than $1.4 million to an investor for losses tied to a municipal bond that was marketed as “safe,” but was steeped in risky derivative securities, according to an arbitration ruling.

Fox Business: – Royal Bank of Canada selling world’s first SEC-registered covered bonds. – Mom-and-pop investors are gaining a new spot to park their cash, as the Royal Bank of Canada plans to issue the world’s first batch of publicly traded U.S. dollar covered bonds–top-quality assets guaranteed by the bank and backed by a pool of mortgages.


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