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U.S. Treasury bonds pulled back from earlier gains on Thursday following the release of upbeat services data, brightening the outlook for the worlds biggest economy.
The pullback came after bonds strengthened this morning following the European Central Bank’s announcement of a surprise rate cut along with its much anticipated program to purchase certain asset-backed securities, which is as close as the ECB has gotten to implementing its own version of quantitative easing.
To see a list of high yielding CDs go here.
In recent trading, the benchmark 10-year note was 11/32 lower, yielding 2.451%, according to Tradeweb. Despite Thursday’s rise, the yield remains near the lowest level since June 2013. The yield was about 3% at the start of the year.
Thursday’s data showed the non-manufacturing purchasing managers index from the Institute for Supply Management increased to 59.6 in August, the highest level since the revised survey’s inception in January 2008.
Bond investors are now eagerly awaiting Friday’s employment data, which gives a much broader gauge of the labor market. According to the WSJ, economists expect that 225,000 new jobs were added to the economy last month, following a gain of 209,000 in July.
Todays Other Top Stories
LearnBonds: – What is driving international bond markets? Look to Germany. – More and more people are saying that investors in bonds should look toward Germany…more specifically, Frankfurt…to see what is driving international bond markets.
Bond Case Brief: – Supply-demand dynamics should support muni market. – Despite the headline news surrounding a small handful of municipal issuers, the muni market has performed well this year and remains underpinned by strong supply and demand dynamics. It’s one of the key themes identified by the MacKay Municipal Managers team at the beginning of the year and, if anything, it’s playing out even more decisively than they predicted.
Reuters: – Cities, states, say U.S. bank rule change will raise municipal borrowing costs. – American cities and states criticized a vote on Wednesday by U.S. regulators that tightened rules on which assets banks can sell in the event of a credit crunch, saying the move will raise their borrowing costs and hamper vital infrastructure projects.
MuniNet Guide: – Whither the high yield muni market? – Given current concerns about a “credit bubble” in the high yield (HY) corporate bond market, we’ve been asked to assess the outlook for their tax-exempt counterparts. To us, many of those concerns don’t really apply to high yield municipals, at least not at this time.
WN.com: – Wall Street muni bond fees decline to lowest since 2004. – Sates and localities are paying Wall Street banks the lowest fees in at least a decade to structure municipal-bond deals as dwindling issuance fosters competition between underwriters.
WSJ: – Investment technology group to launch dark pool for bond trading. – (Subscription required) Investment Technology Group Inc. is jumping into the race to solve one of the trickiest problems for big investors: finding a better way to trade bonds now that banks have stepped back from the business.
Businessweek: – Academic economists vs. financial analysts: Who is right about the bond market? – Academic and policy economists are taught to leave market predictions to the well-paid folks in the financial industry. But lately, not only are they coming out with bold predictions, their expectations are the complete opposite of what industry expects. Financial industry experts say interest rates will rise, the only question is when. Meanwhile, several prominent economists have released an e-book (PDF) arguing rates will stay low for the foreseeable future, perhaps for decades.
MoneyBeat: – Summer’s over for bonds, as companies return to market. – Companies of all stripes are flooding the market with new bond deals, making this week one of the busiest of the year so far, as corporate treasurers continue to take advantage of low rates and investors bet an improving U.S. economy will bode well for corporations.
Bloomberg: – U.S. company bond sales eclipse $24 billion in busiest day. – Corporate bond issuance in the U.S. reached $24.3 billion today in what was the busiest session for the year as the market powers back to life after the sleepiest August since 2008.
Bloomberg: – Morgan Stanley: Brace for seven years of bond losses. – Here’s a grim forecast to consider: It may be 2021 before you make any money on investment-grade bonds again.
High Yield Bonds
Fundsupermart: – Reasons for the recent corrections of high-yield bond funds. – U.S. high-yield bonds has been declining for many weeks since July this year, raising concerns that the bond segment is on a downtrend and will continue to weaken; although junk bonds are still on positive footing year-to-date. In this article, we will examine why the sector has underperformed in recent weeks.
WSJ: – Junk bonds deserve a place in investors’ portfolios. – (Subscription required) In these yield-challenged times, there’s no sin in scavenging for an extra point or two in returns. But higher yields mean higher risk—particularly in high-yield or “junk” bond funds, which invest in corporate debt that has been deemed below investment grade by ratings firms.
Insurance Journal: – California state funds continue to shake up cat bond market. – California’s recent “Winequake” brought the public’s focus back to the state’s significant vulnerability to seismic events. Fortunately, the tremors, while costly, did not tally a high human score. For every image of a cracked street or a toppled building, there was another of a broken bottle or a toppled cask. Thus, media emphasis on emergency response was able to quickly turn to analysis.
Think Advisor: – 3 Investments retirees can avoid. – Some assets can add volatility, expenses and stress to retirement portfolios (with little upside).
Forbes: – Why bonds are breaking down as a hedge for stocks. – Global financial markets are looking a lot like geopolitics these days: Risk is on the rise, old relationships are falling apart and strange new alliances are taking form.
Barron’s: – Why pay retail when there are bargain alternatives? – (Subscription required) What if you were offered one product for $10,425 and a very similar one from the same manufacturer — but in a different package — for $9,146? And what if both provided the same $10,000 worth of ingredients? The choice of the latter would be obvious to most folks.
Morningstar: – 4 Questions to ask before buying a strategic bond fund. – These bond funds may appear to offer a simple solution, but there is a wide array of disparate strategies to choose from.
Investorplace: – 5 Best bond funds to buy for rising interest rates. – Barring a big change in expectations, interest rates are finally going to rise off historically low levels in 2015, and that’s bad news for bond prices. Like the law of gravity, there’s no way around it: When interest rates rise, bond prices fall, which is why so many bondholders are starting to get nervous.
ETF Trends: – Bond ETFs lead August flows, says SSgA. – U.S.-listed exchange traded funds added $14.8 billion in new assets last month, but despite August being the best month for U.S. stocks since February, fixed income ETFs led in terms of monthly inflows.
Muni Managed Money Pitch No supply so that’s why you can’t buy any bonds. Hire us, we sell all your bonds and buy you new bonds. TaDa!
— JD (Jack’s Dad) (@Munisrgood) September 4, 2014
45% of all government bonds are now yielding less than 1% according to BAML
— David Schawel (@DavidSchawel) September 4, 2014
ECB cuts O/N lending rate further into negative territory, cuts main rate by 0.1%; announces ABS purchases. ABS details to come at next mtg.
— AnthonyValeri (@Anthony_Valeri) September 4, 2014