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Investors continued to bail out of the U.S. Treasury bond market on Wednesday as concerns grow that the price rally, which accelerated in May, might have run its course.
The move means the Treasury bond market’s losing streak has stretched into a fifth straight session, the longest in a year. With yields (USGG10YR) on the benchmark securities touching the highest level since May 14. (When bond yields rise, bond prices fall.)
Treasuries were initially boosted, following the release of this mornings payrolls data from ADP. Which showed that U.S. companies added fewer jobs than forecast in May, while the trade deficit in April ballooned to its widest level in two years.
But 10-year notes erased gains following the release of the Institute for Supply Management’s non-manufacturing index, which rose more than forecast in May. The U.S. 10-year yield closed the session at 2.609 percent, a gain of 0.63 percent. Close to their highest level in three weeks.
“We’re seeing strength across the board in ISM non-manufacturing — yields need to move higher,” said Carl Riccadonna, senior U.S. economist in New York at Deutsche Bank Securities Inc., one of 22 primary dealers that trade with the Federal Reserve. “The tone of the data is consistent with an economy that’s recovering from a first-quarter swoon. The signal for the economy is constructive.”
And the sell-off looks set to continue, with many economists predicting that Non-farm payrolls due on June 6th, may show the economy added more than 200,000 jobs for a fourth month.
Todays Other Top Stories
The Select Group: – The mood of municipal bonds. – When one thinks of municipal bonds, generally the next thought is…boring. Bonds are usually boring; adding municipal to the mix should make them more so. Bonds have a job to do and for most of the past several decades they have performed. Primarily we have the trend to thank.
Bloomberg: – Perry’s Texas job gains leave Frisco piling on debt: Muni Credit. – The school district in Frisco, Texas, the second-fastest growing U.S. city, is swelling its debt load by almost 60 percent as Governor Rick Perry lures companies like Toyota Motor Corp. with financial incentives.
Businessweek: – Green bonds seen tripling to $40 billion on new entrants. – With more than $16.6 billion issued worldwide this year, 2014 is on track to surpass $40 billion in green bonds as more companies issue the debt to finance clean energy projects, according to a report by Bloomberg New Energy Finance.
MarketWatch: – Fed officials growing wary of market complacency. – Federal Reserve officials, looking out at mostly calm financial markets, are starting to wonder whether tranquility itself is something to worry about.
Market Oracle: – Why U.S. Treasury bond yields are at record lows. – It seems that nearly everyone is confounded by the record low bond yields that are prevalent across the globe today. If investors can correctly pinpoint the real reason behind these low sovereign debt yields, they will also be able to find a great parking place for their investment capital to weather the upcoming storm.
Wall St Cheat Sheet: – Should you buy the pullback in Treasury bonds? – So herein lies the conundrum. It seems that everybody is bearish of bonds because there are so many obvious reasons to be bearish of bonds. But everybody is therefore on the same side of the trade, and in such situations it often makes sense to take the opposite side. The safe or the “easy” strategy is to simply stay out of the bond market and go neither long nor short.
Investment Grade Bonds
Businessweek: – International paper leads $10 billion of company bond offerings. – International Paper Co. (IP:US) led more than $10 billion of corporate bond sales in the U.S. today, the most in almost two weeks, as relative yields fell to the lowest level in seven years.
High Yield Bonds
Globe and Mail: – High-yield debt: The best of bonds and equities. – Albert Einstein referred to compound interest as the eighth wonder of the world. Unfortunately for investors, interest is currently compounding at rates close to an all-time low.
Citywire Global: – Investec’s multi-asset chief sheds ‘increasingly vulnerable’ HY bets. – Investec Asset Management’s John Stopford is cutting his exposure to high yield bonds over fears the market is fully priced, illiquid and has a limited upside.
AllianceBernstein: – Don’t skip the homework: High yield’s overlooked risks. – Many investors have taken on more risk in their quest for higher returns—especially as signs have pointed to interest rates staying stable until next year. But two key elements are often overlooked: default risk and underwriting standards.
Investors.com: – Emerging markets led taxable funds in May; Munis up too. – Taxable bond investors of all stripes scored gains in May. Investors most focused on yield crowded into emerging markets debt funds. Hard-currency funds, typically issued in U.S. dollars, led the way, rising 2.83% on average in May, according to preliminary Lipper Inc. data.
ValueWalk: – From tactical to core – The case for emerging market debt. – For many investors, emerging market debt could be viewed as a core-portfolio holding rather than a short-term tactical investment.
LearnBonds: – Asset Allocation – How much of your portfolio should be in bonds? – One of the most critical aspects of portfolio management is Asset allocation . It has been often researched and opined that the types of assets one invests in is more important for long-term total return than specific securities selected. Of course since most investors have a wide range of strategies for their money, total return may not the penultimate goal.
Chicago Tribune: – Despite lackluster performance, don’t purge bonds from portfolio. – Common stock investors have certainly been pleased with the overall stock market performance over the last five years. For example the S&P 500 index increased 19.1 percent in that period; Vanguard’s total stock market index fund has increased 19.6 percent.
Bob Johnson: – A high income portfolio for a more prosperous retirement. – This article is for investors concerned primarily with current income; this would include many retired investors and others in the distribution phase of investing.
About.com: – Three easy ways to tell whether your portfolio is diversified. – One of the most common pieces of wisdom investors receive is to diversify their portfolios, and most people understand that they need to have exposure to multiple asset classes. Unfortunately, the advocates of diversification often stop short of informing investors exactly how to diversify their portfolios. As a result, many individuals take a “more is better” approach without gaining a sense of whether they are truly diversified. The good news is that there are three ways to do this.
Bloomberg TV: – Why size matters in bond fund performance. – Bloomberg’s Alix Steel and Lisa Abramowicz examine how size impacts bond fund returns. The speak in “On The Markets” on Bloomberg Television’s “In The Loop.”
MarketWatch: – Prudential Investments launches short duration muni high income fund. – Prudential Investments has launched the Prudential Short Duration Muni High Income Fund PDSAX -0.10% , a fund with the potential to provide investors protection in a rising interest rate environment, while seeking higher yield and tax-exempt income.
William Baldwin: – Best ETFs for investors. – Who’s got the best deal in exchange-traded funds? If it’s large-capitalization U.S. stocks you want, there’s no better choice than the Schwab U.S. Broad Market index fund. Putting $10,000 into that for a decade will cost you only $49.
Gross: PIMCO Total Return strategy turning a big corner. Watch our 12 month numbers over the next 2 weeks and the rest of the year!
— PIMCO (@PIMCO) June 4, 2014
Higher Euro govt bond yields would remove a tailwind from strong YTD 2014 US bond market performance.
— AnthonyValeri (@Anthony_Valeri) June 4, 2014
California 10 year exempt at 2.62% “@jennablan: Yield on 10-year Treasury note now at 2.60%
— Cate Long (@cate_long) June 4, 2014