Dimon Fires Deficit Warning Shot…Pragcap calls BS…..S&P Cuts Spain…and more!

Best of the Bond Market for October 11th, 2012

BusinessWeek: – Jamie Dimon says it is almost assured that investors will dump treasuries if Deficit not addressed – JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon said bond markets would spurn U.S. debt if lawmakers fail to reach an agreement to address the nation’s deficit.

Pragmatic Capitalism: – Says JP Morgan’s Jamie Dimon doesn’t know what he’s talking about. – Mr. Dimon as an example of someone who doesn’t fully understand (gasp) the fixed income markets or our banking system (I know, this is blasphemous, but please read on).

Reuters: – US market steady after Spanish downgrade. – US Treasuries held steady in Europe on Thursday, underpinned by a downgrade of Spain’s credit rating, but gains were capped before a 30-year bond auction and a slew of economic data.

Bloomberg: – PIMCO holding onto munis. – Bill Gross keeps his municipal debt holdings in September at the highest level since 2006. Which should lend confidence to the market which is on a pace to beat Treasuries for a second straight year.

Crossing Wall Street:When will the Fed raise rates? – According to the latest pronouncements from the Fed, the central bank doesn’t have plans to raise short-term interest rates for a few more years. But going by some economic models, a rate increase may not be that far away.

Barron’s:PIMCO premium now at a mere 40%. – The PIMCO High Income Fund’s (PHK) net-asset value was $8.27 last night, meaning that today’s five percent selloff to less than $12 moves the fund down to a premium of 40% or so over NAV. Is the combo of Bill Gross and a monthly distribution enough to get you to pay $1.40 for $1 of assets? You be the judge.

Learn Bonds:4 Reasons to Invest in Emerging Market Bonds. – Emerging market credit spreads have shrunk by 30% since the financial crisis, while the spreads on many developed market bonds have widened significantly. Why have emerging market bonds done so well?

Bond Squawk:Premium priced bonds offer value. – There is a common belief that a high coupon bonds should trade wider than par-coupon bonds, disregarding the bond’s maturity. However, credit analyst from Citi group, Jason Shoup and Sonam T Pokwal argue that currently high coupon bonds with maturity inside 10 years are cheaply priced due to the fact that jump risk premium is weighed too high on these bonds.

Morningstar:Are you paying too much for your bond fund. – Paying a total expense ratio of 0.9% on your bond fund? You could be making a painful mistake.

FT Adviser:Yield hunters should look to US corporate bonds. – The flood of liquidity coming from global central banks has lowered the downside risk for the global economy, according to Standish Mellon Asset Management Company executives.

ETF Trends:Potential ETF picks for a yield-starved portfolio. – If we take the Fed at its word, interest rates–both short and long term–are likely to remain low for a very long time. While an improving economy and avoidance of the fiscal cliff would allow for some back-up in rates, it may be a long-time before we see a 3% yield on the 10-year yield again, let alone the historic average of 6.2%.


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