Bill Gross Goes on a Tirade…an 8.7% Yielder You Want to Own…Covered Bonds…and more!

Best of the Bond Market  for November 1st, 2012

PIMCO: – Investment Outlook, November – Bill Gross. – Investors should recognize that asset and currency prices ultimately rest on the ability of a real economy to grow. If growth cannot be boosted by monetary policy, and fiscal policy is in the hands of a plutocracy more concerned about immediate profits as opposed to long-term vitality, then no Genie or Flavor Flav with a magic clock can make a difference.

Street Authority: – The 8.7% yielder you’ll want to own come December 31st. – On that day, the “Bush” era tax cuts are set to expire. If Congress doesn’t intervene, dividends will be taxed as ordinary income, and your marginal tax rate could go up. While there’s no telling how this situation will pan-out in Congress, if the prospect of higher-taxes keeps you up at night, then you do have some options. I’m talking about municipal bonds.

CFA Institute: Everything you want to know about covered bonds – history proves that buyers of covered bonds usually get paid back in full in the event of default, whereas issuers in other securities usually experience significant haircuts.

Bloomberg:Bill Gross says quantitative easing not spurring investments. – Bill Gross, who runs the world’s biggest mutual fund at Pacific Investment Management Co., said there is no evidence that investment is being spurred by the Federal Reserve’s quantitative easing program.

Bloomberg:Low rates lure yield seekers onto thin ice. – Some investors are pursuing the safety of federally insured deposits. Others are dissatisfied with low nominal and negative real returns and are moving further out on the risk spectrum in their zeal for yield, regardless of whether they understand the additional risk they are incurring.

Institutional Investor:What happens at the Fed under a Romney Presidency? – Josh Thimons of PIMCO examines how events at the Fed would unfold under a Mitt Romney presidency.

MarketWatch:Muni-bond tax advantage at risk in deficit debate. – Just as investors have shifted back into municipal bonds after an overdone default scare, Washington may take away or reduce their tax-preferred status that has been an attraction for so long.

Cate Long:Muniland’s flight risk. – I’m not a big fan of municipal bond-related mutual funds because some of their structural features work the opposite way that municipal bonds work. Mainly, the value of muni bond funds decline as interest rates rise.

Kurt Shrout:The issues with corporate junk bonds. – There are several issues with corporate junk bonds that many investors are unaware of or do not sufficiently understand. This article provides a mathematical projection for how junk bonds are likely to perform, and showing how junk bonds match up against other fixed-income investments with similar years-to-maturity.

Learn Bonds:Should you avoid buying bonds In LQD? Or maybe LQD? – The LQD (aka the iShares iBoxx $ Investment Grade Corporate Bond ETF) was created for one purpose: to provide a way to easily trade and invest in corporate bonds. But does it solve the problem of market illiquidity.

CNN Money:Bond fund manager: Beware Treasuries. – Bond fund manager Bill Gurtin is worried about what he calls Fed-induced complacency that is causing investors around the world to pile into Treasuries. These moves have driven up prices in U.S. government bonds and sent yields near all-time lows.

WSJ: – US bond markets crawl back, tone unscathed by Sandy delays. – U.S. fixed-income markets stumbled back to life Wednesday with confidence largely intact, and with traders and investors holding off from full-bore trading as they waited for the industry to show they have implemented contingency plans.

Washington Post:Bond market watchdog seeks SEC approval for stricter disclosure of bond referendum campaigns. – Do voters really know who is funding the campaigns designed to influence the outcome of ballot measures for taxpayer-financed projects?

Matt Tucker:As the fiscal cliff looms, investors favor Munis. – Faced with a looming fiscal cliff and low Treasury yields, investors are showing a renewed interest in municipal bonds. In the past month and half, we’ve seen investors take a particular interest in muni ETFs.

ETF Trends:PIMCO high-yield corporate bond ETF cuts interest-rate risk. – Tom Lydon talks about the PIMCO 0-5 Year High Yield Corporate Bond Index Fund (NYSEArca: HYS). This ETF provides an attractive yield and holds short-duration bonds to help mitigate interest rate risks.

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