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It isn’t just mom and pop investors who are struggling to find yield at the moment, the professionals are having a hard time of it as well.
Many mutual fund managers are being forced to look offshore to find yields which adequately compensate for the risk. Chief among them in DoubleLine Capitals Luz Padilla, who oversees about $3.8 billion as director of emerging-markets fixed income, at the Los Angeles based fund.
Padilla said in a report that emerging market corporate bond returns will exceed gains in government and local-currency securities over the next 10 years. Her DoubleLine Emerging Markets Fixed Income Bond Fund (DBLEX) has gained 11.2 percent over the past year, beating 96 percent of peers, according to data compiled by Bloomberg.
“The story of emerging-market debt as a secular trend of improving creditworthiness, which began and persists in the sovereign sector, will primarily unfold in the dollar-denominated corporate sector over the next decade,” Padilla says in the report which was co-authored by Ignacio Sosa, director of product solutions. “Investors should avoid emerging-market strategies that focus primarily on dollar-denominated sovereign bonds or local-currency bonds over a full market cycle.”
Outstanding corporate dollar debt from developing nations has more than doubled in the past four years to about $1.3 trillion. Emerging-market companies have sold almost $200 billion of dollar bonds this year, on pace to surpass the record $295 billion issued in 2012.
Todays Other Top Stories
Bloomberg: – Record rally revived with least issuance since 200. – The rally in the $3.7 trillion municipal market is picking up momentum, extending an unprecedented streak of gains as issuance sputters to the slowest pace in 13 years.
Income Investing: – Muni liquidity suffering but monoline insurers making a comeback. – The municipal bond market has endured two detrimental downward trends since the financial crisis: the drying up of bond inventory held by banks and dealers, and the demise of monoline insurers, who once insured over half of the muni market. Robert DiMella of MacKay Municipal Managers, who manages the MainStay Tax-Free Bond Fund, says declining inventory will continue to pose a problem for market liquidity, but sees monoline insurers making a comeback this year.
Reuters: – Puerto Rico weighs on Franklin Resources’ muni funds. – Franklin Resources Inc said on Wednesday investors withdrew $400 million from its municipal bond funds in the latest quarter, a trend that may continue in the short term on worries over Puerto Rico’s chronic fiscal woes.
OppenheimerFunds: – Update on the muni market and the recovery act. – A look at municipal market developments with specific reference to enactment of the Puerto Rico Public Corporations Debt Enforcement and Recovery Act.
ETF Daily News: – The creeping correlation in stocks and bonds. – If you’re not paying close attention, you may be missing the stealthily increasing positive correlation between stocks and bonds.
Bond Vigilantes: – The yield-dampeners: Will interest rates inevitably rise when QE ends? – After the ‘taper tantrum’ of 2013, many commentators predict that the catalyst for a sell-off in fixed income assets could be the ending of quantitative easing by the US Federal Reserve later this year. Here we present an alternative view to this consensus thinking, analysing a number of dynamics in bond markets that have surprised investors during this period of extraordinary monetary policy.
Income Investing: – Bonds now higher on the day as stocks suffer. – That midmorning turnaround in the bond market has accelerated into flat-out strength, as Treasury prices are now higher on the day after starting out sharply lower.
Investing.com: – U.S. Treasury bonds are still outperforming everything. – U.S. Treasury Bonds are still the ultimate winner, in spite of the balance sheet problems the U.S. government faces. As the chart below illustrates, 20+ year Treasury bonds are outperforming every other major asset class year to date.
WSJ: – U.S. Government bonds suffer biggest selloff since November. – U.S. Treasury bonds suffered the biggest one-day selloff since November as the latest data showed the U.S. economy rebounded sharply from the winter doldrums.
Zacks: – Zacks #1 Ranked government bond mutual funds. – We share with you 5 top rated government bond mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect these mutual funds to outperform their peers in the future.
High Yield Bonds
Talk Markets: – A dangerous boom in unsound corporate debt. – In his newest weekly column, John Hussman talks about a feature of the current echo bubble era that we believe will turn out to be an extremely important one. Readers of this site know of course that we have frequently sung from the same hymn sheet, but it is a topic the significance of which cannot be stressed enough. After briefly recapping the history of the housing bubble and the ensuing credit crisis.
WSJ: – Cracks form in investors’ hunt for yield. – After a year of consecutive monthly gains, European junk bonds are heading for a loss in July, suggesting cracks are forming in investors’ seemingly relentless hunt for yield.
BBC: – Argentina defaults for second time. – Argentina has defaulted on its debt – for the second time in 13 years – after last-minute talks in New York with a group of bond-holders ended in failure.
Reuters: – Argentina default is focus of U.S. court hearing on Friday. – The U.S. judge overseeing Argentina’s dispute with a group of creditors said a hearing he has set for Friday morning in the case will be “regarding the recent default by the Republic of Argentina,” according to a court filing posted Thursday.
DealBook: – Q. and A.: Exploring what’s behind the battle over Argentina’s debt. – Argentina is on the verge of defaulting on billions of dollars of government debt. It has reached this point after years of battling a group of New York hedge funds that have been demanding full payment on bonds that defaulted in 2001. The battle has already rocked international debts markets and may affect the economies of other countries in the future. Below are answers to questions about the fight, which has taken complicated twists and turns over the years.
CNBC: – Bank of NY Mellon informs exchange holders of Argentina’s default. – Just as Bank of New York Mellon was preparing a notice to holders of Argentinian government bonds that the country was, effectively, in default, the issuer’s own officials denied that scenario and demanded justice for U.S. creditors in the International Court of Justice.
Bloomberg: – Bombs from Abuja to Nairobi fail to slow Africa’s markets. – After a series of bombings hit Nigeria’s capital this year, several investors set to join Ridle Markus on a trip to Abuja postponed because of security concerns.
Forbes: – Zweig bond model remains bullish. – As we entered 2014, just about every Wall Street analyst said that interest rates would move higher. Goldman Sachs estimated that the 10-year Treasury bill would end the year at 3.25%. Not one analyst predicted the 10-year would be below 3%.
Market Realist: – Why high-grade and high-yield markets assess risks before FOMC. – Investor flows into mutual funds for various assets are key momentum indicators for the asset class. Although they typically lag market sentiment, they provide valuable clues for gauging investor behavior.
ValueWalk: – Rising interest rates: The good, the bad…No ugly. – The US Fed has said it will almost certainly boost short-term interest rates by 2015, and many bond investors are focused intently on managing the risks of rising interest rates. But it’s also important to recognize that there are benefits.
MarketWatch: – Does your mutual fund own Argentina’s bonds? – Hedge funds aren’t the only investors with money on the line as Argentina grapples with the consequences of a missed debt payment.
Hawkinvest: – With a yield over 9%, the Credit Suisse high yield bond fund is a strong buy. – The Credit Suisse High Yield Bond Fund is a very attractive way to invest in junk bonds and get an above average yield of 9.1%.
Gross: Folks: It’s Russia/global trade that is at the center of these selloffs. It won’t be resolved quickly.
— PIMCO (@PIMCO) July 31, 2014
“current” just hit the streets in muniland so play hard to get and get your price or don’t get at all..traders are deer’s in headlights
— Michael Pietronico (@MillerTabak) July 31, 2014
Rick Rieder: GDP data, improving labor market & strong inflation # confirm rate hike on the horizon, despite Fed’s accommodative statement
— BlackRock® (@blackrock) July 31, 2014