To get the Best of the Bond Market delivered to your email daily click here. There is nothing that scares bond investors more than the threat of rising rates. With interest rates at record lows, there is only one way they can go. The question is when? Now that the Fed has announced that quantitative easing is coming to an end in October, economists and bond traders are focusing on when the long period of near zero official rates set by the Federal Reserve will finally end. To see a list of high yielding CDs go here. Central bankers, have stressed they’re in no rush to tighten policy in the absence of real wage growth, but chatter about the timing of rate increases stands to grow a lot louder should economic activity continue to pick up over the summer. Indeed, stronger employment figures in the U.S. have already driven policy-sensitive short-dated bond yields – an indicator of interest rate expectations – noticeably higher in recent weeks. The likelihood of a long period between the end of the central bank’s monthly bond buying in October and the first rate rise, which markets forecast around September 2015, helped contain Wednesday’s brief rise in Treasury yields and interest rate futures. But bond market stability may not last.
Todays Other Top Stories
Learn Bonds: – Retirement planning for millennials – Getting Started. – The first in a series of articles aimed at helping millennials get on the investing lader.
Business Insider: – Perspectives on PR muni bonds. – Rafael Costas and Sheila Amoroso, Co-Directors, Municipal Bond Department, Franklin Templeton Fixed Income Group® offer some fresh perspective on ongoing developments in Puerto Rico, including a new Act that was signed into law there. Bond Buyer: – Muni market frustrated by vague MCDC settlement. – Bond lawyers and issuers are frustrated that the Securities and Exchange Commission did not specify the disclosure failures that led to its settlement with a California school district on Tuesday. They said it leaves them with no helpful guidance on what kinds of disclosures the SEC is focusing on in its Municipalities Continuing Disclosure Cooperation voluntary enforcement initiative. My Dollar Plan: – The triple benefit of municipal bonds. – With the volatility of the stock market and low interest rates, many investors are looking for ways to earn a decent return on their money and also keep their principal safe. While it is common knowledge that you cannot earn a high return unless you take on a higher risk, you can still earn a decent return while playing it safe. To do so, look no further than municipal bonds. Bond Buyer: – Puerto Rico debt restructuring law highlights guarantor exposure. – Financial guarantors that insure $15 billion of Puerto Rico bonds have taken a drubbing in the stock market as the island’s debt restructuring law triggered a series of credit downgrades. MuniNetGuide: – Munis hit by Puerto Rico fallout, again. – As we headed into the long holiday weekend, there was a definite feeling among muni market participants that the Puerto Rico (PR) crisis has now entered a critical new phase, and that the attendant uncertainty could once again derail all the positive market momentum built up during the first half of this year. As we’ve pointed out over the past two weeks, the tax-exempt market’s tremendous rebound year-to-date has also left it vulnerable to a correction. Sun Times: – Topinka says Illinois will be plagued by ‘$2 billion collapse’. – Quincy – Illinois Comptroller Judy Baar Topinka is warning of “a $2 billion collapse” next year when the state’s temporary income tax increase begins to roll back.
LPL Financial: – LPL Financial Research – Irrepressible bonds. – Fixed Income & Investment Strategist Anthony Valeri looks back at the bond markets first half performance and discusses the outlook for the second half of 2014. USA Today: – What to watch: Bond yields keep tumbling. – You may not think inflation is dead, especially if you’ve bought food or gas recently. But the bond market thinks inflation is deader than a coffin nail, and if you’re an investor, the bond market’s opinion is the only one that counts.
WSJ: – U.S. government bonds rise after Fed minutes. – Treasury bonds rose for a third straight session Wednesday as the minutes of the Federal Reserve’s June policy meeting suggested the central bank is in no rush to raise interest rates. WSJ: – Investors flock to government bonds across globe. – Investors piled into haven government bonds in the U.S., Germany and the U.K. on Thursday, driven by fresh signs of uneven global growth and concerns over the health of a major Portuguese bank.
Investment Grade Bonds
Money Marketing: – Richard Woolnough: The merits of investment-grade corporate bonds. – There have been few significant challenges to the generally positive environment for fixed interest assets in recent months. FT: – Lew challenged over Volcker rule impact. – The influential head of the House Financial Services Committee has called on U.S. Treasury secretary Jack Lew to investigate whether sweeping financial reform has impaired the $10tn market for U.S. corporate debt and risks amplifying an interest rate shock for large companies.
High Yield Bonds
Benzinga: – High yield bond ETFs have hit a plateau. – The high yield bond market has continued to reap the benefits of low interest rates and a hunger for yield that has fixed-income investors climbing down the credit ladder. This healthy demand has helped push prices in many junk bond ETFs to all-time highs, which in turn has pressed yields near historical lows. Moody’s: – Moody’s: US high-yield bond covenant dips slightly in June. – North American high-yield bond covenant quality declined marginally in June following a slight improvement in May. Jentner Wealth Management: – Are you tempted by the allure of high-yield returns? – With interest rates on money-market funds, bank accounts and high-quality bonds at 50-year historic lows, many people are seeking safe, high-yield investments. Canadian Investment Review: – Global high yield has finally outgrown the negative labels. – Burdened with negative labels, high yield bonds are often perceived as low quality and high risk. Investors may be surprised to learn that many of the companies whose bonds are rated “below investment grade” are, in fact, well-established and well-known businesses that have been operating profitably for decades.
Emerging Market Bonds
Businessweek: – Argentine bonds jump on prospect of settlement with holdouts. – Argentine bonds surged the most in emerging markets on speculation the South American nation is moving toward settling with holders of defaulted debt. FMD Capital: – Emerging market ETFs showing excellent strength. – Emerging market ETFs have been one area of the market that I have been admittedly cautious about adding to. Over the last several years they have consistently underperformed their U.S. and European counterparts as investors have adopted a home-country bias to their portfolios.
BlackRock: – Trying to “Fed Proof” your portfolio? Beware of the risks. – As head of BlackRock’s Multi-Asset Portfolio & Investment Consulting team, I get a courtside seat to investor trends. Since the Fed’s tapering announcement last May, many investors have been extremely worried about how rising interest rates will affect their portfolios. Unfortunately, in their quest to “Fed-proof” their fixed income investments, some investors are unintentionally taking on other types of risk-and in doing so, losing diversification and increasing their exposure to volatility.
Money Marketing: – Are growing strategic bond funds losing their nimbleness? – n the shadow of a thriving equity bull run, fixed income has become a difficult asset class to find yield in. It is no wonder then that strategic bond funds have experienced a surge in popularity as more investors opt for managers who have a greater degree of flexibility over what they can hold and where they can invest. Bloomberg: – PIMCO dissidents challenge Bill Gross in ‘happy kingdom’. – In the weeks leading up to Pacific Investment Management Co.’s annual forum in May that sets the firm’s long-term investment outlook, Bill Gross was facing internal dissent. ETF.com: – 5 Best performing fixed income ETFs. – The first half of 2014 has been an interesting period for the fixed-income market. The widely forecast “bond market Armageddon” didn’t happen. Instead, a lackluster U.S. economic recovery, a rather tame inflation outlook, a very accommodative European Central Bank and geopolitical unrests helped drive down Treasury yields and lift prices.
Wow treasuries are ripping today — David Schawel (@DavidSchawel) July 10, 2014
30-Year auctions that are reopening tend to be less volatile and more likely to stop closer to 1pm prices. — Ed Bradford (@Fullcarry) July 10, 2014