This week’s top stories from Learn Bonds and around the web.
Learn Bonds: – Q1 bond market review – The “Great Rotation” that never was. – During the first quarter of 2013, talk of a “Great Rotation” out of bonds and into stocks reached fever pitch. Reading that nonsense on nearly a daily basis left me feeling as if it was simply the latest attempt by an equity-enamored financial media to scare everyday investors out of bonds and into the stock market. Did it work? Let’s take a look.
Learn Bonds: – Minimizing cash is king. – Although investing entails uncertainty, there are things you can do that definitely make you a better investor, e.g., lowering the markups or markdowns you pay on certain fixed-income transactions and lowering the expense ratios you pay on index funds. Usually minimizing the amount of cash you keep on hand is one of these things.
Learn Bonds: – Japan goes all-in on money printing – And bond yields plunge. – When I first heard about the Bank of Japan’s (BOJ) recent announcement that it would inject roughly $1.4 trillion into the Japanese economy by the end of 2014, three thoughts immediately came to mind. First, I wondered how high the Nikkei might soar over the next couple of years in response to the extraordinary liquidity being provided by the Bank of Japan. My second thought concerned bond yields and how long-term Japanese government bonds were responding to the announcement.
Learn Bonds: – Microsoft & Intel: Does quality make up for low yield? – The stock market has soared recently and certain well rated tech company corporate bonds have fallen. Specifically, Microsoft and Intel’s bonds have dropped in price; the companies’ stocks have also lagged relative to the overall market. So does buying Microsoft and Intel bonds make sense?
Learn Bonds: – The permanent portfolio – What it is and how it works. – Whilst the all weather portfolio sounds great in theory, in reality this strategy is difficult to replicate. It constantly requires adjustment based on the anticipated volatility of the asset classes you’re investing in. This is perhaps somewhat beyond the scope of most private investors. There is another option however that follows a similar line of thinking to the All Weather Portfolio, but in my opinion is much more straightforward to execute. Its called the Permanent Portfolio.
PIMCO: – Bill Gross investment outlook – A Man in the mirror. – There is not a Bond King or a Stock King or an Investor Sovereign alive that can claim title to a throne. All of us, even the old guys like Buffett, Soros, Fuss, yeah – me too, have cut our teeth during perhaps a most advantageous period of time, the most attractive epoch, that an investor could experience.
Barron’s: – 30-Yr Treasury yield falls below 3% for first time since January. – Treasuries continue their recent surge Thursday, particularly the long bond, with 30-year Treasuries up 1 5/32 on the day, dropping its intra-day yield to 2.999%, per Tradeweb data, the the first time it’s fallen below 3% since mid-January. The iShares Trust Barclays 20+ Year Treasury Bond Fund (TLT), which closed 0.9% higher Tuesday, is up another 0.95% Thursday at $120.10.
About.com: – The best bond ETFs of the first quarter. – Here are the top ten bond ETFs for the first quarter of 2013, leaving out those whose performance was affected by pricing anomalies brought about by low trading volumes. Five of the funds are inverse bond funds, or those that bet against the bond market; or in this case, U.S. Treasuries specifically. High yield bond funds are also heavily represented on the list, reflecting the strong outperformance of the asset class in the first three months of the year.
About.com: – The worst bond ETFs of the first quarter. – Here are the ten worst-performing bond ETFs during the first three months of 2013. The composition of the list reveals some key trends of the first quarter: emerging market bonds underperformed, as did international bond funds that were exposed to the downturn in foreign currencies. Also lagging were funds with the highest interest rate sensitivity, including several leveraged ETFs tied to US Treasuries.
Reuters: – Big inflows into bonds undercut the “Great Rotation”. – Fears of a rush for the exits from the US bond market have been greatly exaggerated. Even as the fixed-income sector grapples with a rare negative start to the year, many of the biggest and widely followed bond firms are still attracting new cash to their flagship funds. And it is not expected to stop any time soon.
USA Today: – Beware of those who cry ‘bubble’ about bonds. – Thanks to the technology bubble of the 1990s and the housing bubble of the mid-noughties, U.S. investors are a bit too familiar with bubbles: Spotting the next one has become a cottage industry of sorts. But you should be wary of someone who shouts, “Bubble!”
Matthew Claassen: – Here’s what happened the last time the Fed owned all outstanding Treasuries. – We hear so often that the monetary policy of the Federal Reserve is unprecedented; there is nothing in history with which we can compare QE4. But, the truth is not so simple. There was period in time, during the decade of the 1940s, when the Federal Reserve purchased and held all available short-term US Treasuries and virtually all long-term US Treasuries, a much greater percentage of outstanding securities than what the Fed owns today.
The Washington Times: – Stockton CA, bankrupt: Expect Cyprus like solution for bondholders. – In a case that will most likely go to the US Supreme Court, the municipal bondholders will be pitted against the California Public Employee Retirement System. I believe it safe to assume that the bondholders will lose their investment a la Cyprus, as they accepted the risk of doing so when they purchased the bond, unlike the retirees who were given government guarantees.
NPR.org: – Stockton bankruptcy Judge defers decision on pensions. – US Bankruptcy Judge Christopher Klein agreed yesterday that the city is, in fact, broke. But he didn’t decide the question of whether the city must renegotiate its pension obligations, as some of its creditors had hoped.
WSJ: – Fed’s Williams: Bond purchases may be tapered by this summer. – The US economic recovery may have strengthened enough for the Federal Reserve to begin winding down its bond purchases by as early as this summer, a top official from the central bank said Wednesday.
Bloomberg: – Pimco ETF Trounces flagship attracting less cash. – Pacific Investment Management Co.’s 13-month-old exchange-traded fund is attracting more cash than the firm’s flagship Total Return mutual fund as investors join Bill Gross in preferring ETFs for bond investing.
ObliviousInvestor: – Should you be scared to own bonds? – It’s true that interest rates are currently very low, and it’s true that bond prices go down when interest rates go up. But there’s no telling when interest rates are likely to rise. They could fall first (though not very far) or stay right where they are for an extended period of time. In addition, with short-term or intermediate-term bonds, the losses would be very unlikely to approach anything like the losses that can occur in the stock market.
Cate Long: – Muni CDS goes ‘bang’. – The use of credit default swaps in muniland is poised to take off, a project that’s being called the “US Municipal CDS Bang.” Starting Apr. 3, the terms and conditions of new muni CDS have been standardized with the stated intent of creating a useful risk-hedging product. This project is being driven not by regulators but by Markit, a private market-data vendor, and the International Swaps and Derivatives Association, a global consortium of Wall Street banks. But it’s not so clear that this is what the market needs at this time.
ETF Trends: – Heavy selling in muni bonds as ETF trades at discount. – Investors pulled more than $500 million from municipal bond funds in March and the largest ETF tracking the fixed-income sector is selling at a discount to net asset value, suggesting the asset class is out of favor with investors.
Indexuniverse: – Inverse Treasury ETF huls in assets. – The ProShares UltraShort 20+ Year Treasury ETF (NYSEArca: TBT), a double-exposure inverse play on long-dated U.S. Treasuries, was one of the most popular funds last Thursday, seeing assets jump nearly 6 percent on the same day both the S&P 500 and the Dow Jones industrial average rallied to record highs.
Reuters: Fitch upgrades Michigan’s rating as economy improves. – An improving economy won Michigan a credit rating upgrade to AA from AA-minus from Fitch Ratings on Tuesday.
Oblivious Investor: – Why use i-bonds Instead of TIPS? – I-Bonds, like TIPS, are debt instruments issued by the federal government that offer a certain after-inflation return — as opposed to most bonds (i.e., “nominal” bonds), which offer a certain before-inflation return. But there are meaningful differences as well, so what are they?
IndexUniverse: – Active bond managers shine in 2012. – Most active managers of US government bond mutual funds performed unusually well relative to benchmarks in 2012, particularly on the shorter end of the yield curve—a clear sign active managers were able to take on credit and interest rate risk in a way that index funds simply cannot.