10 Great Lessons for Bond ETF Investors….and More

Best of the Bond Market for May 23rd, 2012

ETF DB: 101 Lessons to Learn About ETFs – Super comprehensive list – Here are some of the lessons relavent to bond investors with their corresponding lesson number from the list:

22. Explains how most Bond ETFs don’t act like individual bonds
25. Explains how TIPS ETF’s are flawed,
40. AGG And BND Are Not True Total Bond Market ETFs
46. Bond ETFs Have Allocation Concerns
47. Fundamental Bond ETFs Address The Weighting Problem
51. Invest In The U.S.A. With Build America Bond ETFs
87. Floating Rate Bonds Eliminate Interest Rate Risk
89. Bond Futures + ETNs = No Distributions
99. Bond Sector ETFs: Balance Out Fixed Income Exposure

Reuters MuniLand: Winners and Losers in a Hot Market – California’s bonds have been enjoying strong demand even as the governor announced larger-than-expected deficits last week…Investors are wary of Illinois debt, which has averaged 160 basis points over the last year. Another one of the laggards is Puerto Rico.

The Big Picture: Chinese Purchases of US Treasuries – This story helps explain a lot in regards to some of the official outflows shown seen in the chart below since 2011.  If Chinese officials are able to completely bypass the primary dealers when purchasing Treasuries, then a large chunk of these transactions will never be recorded in the TIC data.

Simit Patel: What to Make of China’s Buying Treasuries Direct? – As an individual trader disconnected from Wall Street and even more disconnected from the U.S. Treasury Department’s dealings with China, I don’t feel particularly comfortable participating in the Treasury bond market as a result of this development. I feel as though individuals will be at too much of a knowledge disadvantage, even more than they usually are.

LearnBonds: The Professional Edge in Municipal Bond Trading – Is it possible for an individual investor to replicate what professional bond managers do when buying individual municipal bonds? Unfortunately no.  Reasons? Institutions have an edge in dealing with supply issues and poor execution that is inherent in the market.

Bloomberg: Ford Regains Investment Grade Rating – Moody’s boosted Ford’s senior unsecured ratings two levels to Baa3 from Ba2 and raised its finance arm, Ford Motor Credit, to Baa3 from Ba1.

Bloomberg: U.S. State Debt Rose 2.5% To $510 Billion In 2011, Moody’s Says – Tax-supported debt for U.S. states rose to a net $510 billion in 2011 from $497 billion in 2010, according to Moody’s Investors Service.  The year-over-year increase of 2.5 percent is down from an annual rate as high as 10 percent in the previous two years, the New York-based company said today in a report.

ETF Trends: ETF Spotlight, High Yield Corporate Bonds – Good overview and summary of the differences between HYG, JNK and PHB.

Bond Buyer: Experts Weigh In on Greek Drama and the Muni Impact – Thoughts from the experts: Money might flow into munis in a flight to quality, Money might flow into munis in a flight to quality, A Greek euro exit would lead to widening spreads of yields between strong and weak munis, A Greek default would lead to increasing financial problems for European banks and investors, Manges said. Some would sell taxable U.S. munis to raise cash, which would pressure the bonds’ prices…

WSJ: Achtung Below! Long Bunds Fall Below 2% – The heady aroma of panic is permeating the global financial markets this morning as folks look for any rock to stash cash under.   the German 30-year bond has been soaring in price, pushing yields down below 2%, for the first time ever.

Bond buyer: Market Post: Muni Yields Dither Amid Volume as Treasuries Rally – Tax-exempt yields are steady across most of the curve crossing noon, according to the Municipal Market Data scale. The benchmark 10-year triple-A yield and the 30-year yield each closed Tuesday five basis points higher, at 1.83% and 3.14%, respectively. The two-year yield rose two basis points to 0.33%, after 24 straight trading sessions at 0.31%.



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