Meredith Whitney and Replacement Refs…Corp. Yields Hit New Lows…NJ Budget Illusions and more!

Best of the Bond Market for September 27th, 2012

WSJ: Meredith Whitney blew a call and then some –  In another life, Meredith Whitney would have made a terrific replacement referee.  Not only can’t she get the call right, she won’t admit when she’s wrong.

WSJ: – Yields on U.S. Corporate bonds hit new low. – Corporate-bond yields fell to another record low as recent moves by central banks continued to drive investors into riskier investments. That pushed down the interest, or yield, bond buyers could demand.

Cate Long: – More budget illusions in New Jersey. – With New Jersey Governor Chris Christie’s income projections failing to materialize he has no money to fund proposed tax cuts. But instead of fessing up and putting them on the back burner, he’s decided to create the illusion that he can cut taxes, even while state revenue doesn’t support it.

MarketWatch: Bond yields have fallen for 8 straight sessions – thats the longest stretch for 16 months.

Michael AneiroFixed income assets surpass equity assets at Fidelity for first time – bonds, measured together with money market funds, have now surpassed stocks by dollar value in the holdings of Fidelity Investments. Reuters reports that bond and money market assets at Boston-based Fidelity now total $848.9 billion, accounting for more than half of the company’s $1.6 trillion in managed assets.

MarketWatch: – How will we know when the great bond market finally tops out? – How will we know when the great bond market finally tops out—for good? It’s an urgent question, since the chorus of those predicting that a top is at hand—a chorus that has continued for years now, even as the unprecedented bond bull market has kept chugging along—has recently reached a crescendo. Needless to say, someday these stubborn bears will be right—might it be now?

Bloomberg:Corporates attractive amid easing, BlackRock’s Rosenberg says. – Corporate bonds are among the most attractive fixed-income assets with most sovereign-debt yields below the level of inflation and central banks easing, according to Jeffrey Rosenberg of BlackRock Inc.

Bond Squawk: – Bond Fund Managers Bet on Falling Yields. – Upon the Fed’s announcement of QE3, the stock market rebounded strong with S&P500 reaching a record high of 1,470s. Because of the rallying equity market, the 10-yr US Treasury Yield skyrocketed in the mid- September. However this week, the Treasury yield re-entered the downward course to 1.6% level.

FT:Banks/munis – a short-term affair? – US banks have acquired a taste for munis. Their holdings of municipal securities and loans hit $330bn in the second quarter, up from $270bn a year ago and $200bn in 2007, according to Federal Reserve data. But like all buyers of municipal bonds, they’re investing at historically low yields. When interest rates rise, the price of munis will decline as other forms of lending could begin to look tasty again.

American Finance Association: – Why have Treasury Inflation Protected Securities (TIPS) been cheap relative to plain vanilla Treasuries? – We show that the price of a Treasury bonds are almost always overvalued relative to TIPS. Total TIPS–Treasury mispricing has exceeded $56 billion, representing nearly 8% of the total amount of TIPS outstanding.

Bloomberg:Morgan Stanley Sees Sales Surge Fueling worst month: Muni Credit. – The $3.7 trillion municipal-bond market is heading for its worst monthly performance since June. If the past decade is any guide, October may be even worse.

Jpost:In search of income.  – Aaron Katsman answers a readers question on how to invest for income. With interest rates at record lows many retirees are finding it hard to cover living cost from bond income alone. What can they do?

Learn Bonds:Are your investments about to drop off the fiscal cliff? – What is the fiscal cliff? Essentially, the government will be taking more money out of the economy via a tax hike and putting less money into the economy through spending. While these efforts are essential to balancing the federal budget, they will likely have a major negative economic impact.

Bond Squawk:Credit Default Swaps Flinch as Corporate Bonds Play Chicken with Equities. – Several days ago, we talked about the Federal Reserve’s intent of improving financial conditions by way of balance sheet expansion and QE. Their recent policy action is generally supportive of risky assets such as corporate bonds and equities. Since the announcement, spreads and equities have performed as expected.

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