Munis best asset class in 2012…DeLong vs. Krugman…NY Times Joins Bond Bears…and more!

Bloomberg: Munis are best performing risk adjusted asset class of 2012 – U.S. state and local debt returns will exceed those on stocks, Treasuries, corporate bonds and commodities for a second straight year when adjusted for volatility, the longest winning streak since 2006.

NY Times: Has jumped on the bond market bear bandwagon – The great bear market in bonds, both corporates and governments, lasted 35 years, from 1946 to 1981. The bull market lasted about 30 years. A new bear market almost certainly has begun.

Brad DeLong: DeLong vs. Krugman on bond vigilantes – For Paul Krugman’s argument to be water-tight it is not enough for it to be irrational for the Fed to inordinately fear inflation and raise short-term interest rates when the economy is depressed, it must be the case that the Fed will not inordinately fear inflation and will not raise interest rates when the economy is depressed.

Learn Bonds: Three lessons bond investors learned in 2012 – Guaranteed positive returns disappeared. Emerging markets took center state.  The reputation of treasuries took a hit.

The Reformed Broker: Trends can persist past the point of sanity – and 5 other lessons learned in 2012.

The Finance Buff: Is Bill Gross good or lucky?  – How did Bill Gross and the PIMCO team do it? I don’t know. I’m sure if someone digs deeper under the hood, they will see Bill Gross took more risk. Some will also say Bill Gross got lucky. It is possible to get lucky for a long time. Bill Miller of Legg Mason is usually offered up as an example.

Cate Long: Making the case for the Fed to buy national infrastructure bonds  – The Federal Reserve has bailed out or propped up the financial system, the housing market, equity, bond and MBS markets over the last five years. These efforts have succeeded in keeping the nation from a deflationary spiral, but they have done little to add productive assets to the economy.

Bond Vigilantes: YTD returns in european fixed income markets – Looks like subordinated financials did the best.

Christopher Keith: Don’t dump your bonds, lower your duration – Investors may have legitimate concerns about the bond market as 2012 comes to a close, but undisciplined or panic selling is not the right strategy to pursue.

WSJ: The outcome of this court case has significant implications for emerging market investors – Argentina’s long-running battle to avoid settling its 2001 default may be approaching its end. More than $1 billion is being contested—but much more is at stake. A court decision will soon determine whether investors can count on U.S. law to enforce their contractual rights when they lend money to foreign governments.

MarketWatch: Munis look good for 2013 – “Once you decide what your allocation to fixed income is, you look for the best alternatives within fixed income — and munis make the most sense,” says Thomas Metzold, a manager of the $5.1 billion Eaton Vance National Municipal Income Fund.

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