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With junk bonds looking more and more overbought, investors are having to look elsewhere in search of yield, with emerging markets coming near the top of the list.
Emerging-market bonds suffered in January after the Fed began tapering back its bond purchases. But many analysts say some markets have been unfairly hit by the rout, creating opportunities for astute investors.
The question is, which ones? Rick Rieder, co-head of fixed income at BlackRock has shed some light on the matter. Rieder has taken the opportunity to scoop up dollar-denominated bonds sold by Indonesia, India and Mexico.
In an interview Thursday, Mr. Rieder also signaled a continued shift in the firm’s allocation in the euro zone’s sovereign debt market.
Over the past two months, Rieder said he has slashed holdings of Spain and Italy and bought government bonds sold by Portugal and Slovenia. He also bought European corporate bonds during the period.
Rieder explained his stance by saying the euro zone debt market has been bolstered by “a stabilizing euro zone” where the economy is emerging from a recession. Another boost for euro zone debt has been easy monetary stimulus from the European Central Bank.
Bond yields in euro zone have tumbled since ECB President Mario Draghi said in July 2012 that the bank is ready to do whatever it takes to preserve the euro. Since then fears over the euro zone’s debt crisis has diminished, and the euro zone’s bond market has regained investors’ confidence. Rieder said.
Todays Other Top Stories
Investing.com: – Time to get into municipal bonds? – Municipal bonds have been in the news recently and rocked with the troubles in Puerto Rico. That was until Vladdy Putsman decided he wanted a new vacation island home with views of the Black Sea on all sides. Whether this stopped any bleeding in municipals due to the bleeding in the 51st State or not it allows you to take a look without all the noise. And on the weekly view it looks quite attractive.
Bloomberg: – Rockland to Rochester win as N.Y. expands oversight. – From Rockland, New York’s lowest-rated county, to Rochester, its third-largest city, localities in the Empire State are winning with investors as the state expands oversight of municipal finances.
Montgomery Advertiser: – Avoid more taxes with municipal bonds. – One of the very first tax-advantaged investments, municipal bonds, is still one of the most popular. Municipal bonds are debt obligations issued by states, cities, towns, or public commissions to provide money for schools, hospitals, and other public works. These securities provide income that is free of federal and, in some cases, state and local taxes.
LearnBonds: – Predicting the future. The Fed. – We are entering a new world where interest rates will not be so predictable. This is just something that all participants in the bond and money markets are going to have to accommodate.
WSJ: – Treasurys fall sharply after Fed decision. – Treasury bonds fell sharply Wednesday, pressured by concerns that the Federal Reserve could increase short-term interest rates sooner.
Market Realist: – Why the investment-grade bond market declined last week. – After weeks of good earnings releases that largely supported the U.S. equity market and the investment-grade corporate bond market, last week’s activity recoiled dramatically. Despite lower borrowing costs and yields, the primary corporate bond (LQD) market remained dull.
Businessweek: – Marathon Asset hates high yield. – Marathon Asset Management LP, a hedge-fund operator that manages about $10.5 billion, is betting prices will fall in the high-yield, high-risk bond market because interest rates and defaults probably will rise.
The Asset: – Asia’s bond markets must be ready to face the rising risk of contagion. – Emerging East Asia’s local currency bond markets have weathered the recent market volatility well but risks to the markets are ticking up and countries need to be prepared, warns the Asian Development Bank’s (ADB) latest Asia Bond Monitor.
FT: – Brave should return to EM government bonds. – The true focus of political risk this year is in emerging markets, where five of the biggest democracies have elections: Turkey, Brazil, South Africa, India and Indonesia.
FT: – PIMCO has pulled $3.3bn out of Brazil. – PIMCO has slashed its holdings of Brazilian bonds by over a third to $6.2bn, after the position weighed heavily on the performance of the US asset manager and its investment supremo Bill Gross last year.
Pensions and Investments: – Mapping a changed fixed-income world. – David Scott makes the case for an unconstrained multi-sector approach.
FT: – Further tensions revealed at top of PIMCO. – One of three men lined up to be deputy to Bill Gross, the chief investment officer of Pimco, quit on the day his appointment was due to be announced after becoming disillusioned with the famed investor’s stewardship of the bond fund management group.
David Fabian: – Bond ETFs get tapered by Fed minutes. – The release of the monthly Federal Reserve meeting minutes threw bond ETFs for a loop on Wednesday as investors digested the news.
Wall St Cheat Sheet: – 3 ETFs for Income Investors. – A short list of ETFs that yield thirsty investors should consider. While I wouldn’t recommend comprising a portfolio of entirely these funds, I did have a completed portfolio in mind.
ETF.com: – Izenstark: Diversify in bonds with ETFs. – The changing landscape in fixed income is posing challenges for end-investors and active managers alike, but it also offers opportunities for alpha generation, Aaron Izenstark, co-founder and chief investment officer of Iron Financial says.
ETF Trends: – ETFs with significant exposure to Russian bonds. – With heightened geopolitical risk and the prospect of U.S. and EU economic sanctions following Russia’s incorporation of Crimea disrupting the flow of potential investment, triggering rising capital outflows, and further weakness to Russia’s already deteriorating economic performance. ETF Trends looks at which ETFs have the biggest exposure to Russian bonds?
Gross: Yellen “Qualitative Guidance” lacks definition as does “maybe 6 months or so.” Higher interest rates the result.
— PIMCO (@PIMCO) March 20, 2014
Elevated selling pressure in the secondary #municipal bond market this AM. Most lists 10-years and in as market cont to respond to govies
— Muni Market Advisors (@Muni_Mkt_Advis) March 20, 2014
Bonds taking it on the chin post data
— David Schawel (@DavidSchawel) March 20, 2014