Junk Bonds Baby…YEAH BABY YEAH

Best of the Bond Market for June 4th, 2012

WSJ: Junk Bonds: Is it Time to Buy? – The junk selloff has left the bonds looking cheap by some measures. According to a note from BNP Paribas’ Martin Fridson, the bonds in the BofA Merrill Lynch High Yield Master II Index yielded 7.16 percentage points more than the equivalent Treasury at Friday’s close. It’s the first time this year that the premium, or “spread,” on the BofA Merrill index has reached that level.

Blackrock: High Time for High Yield? – With corporate balance sheets strong, and accommodative monetary policy, the below chart shows high yield defaults near historical lows at around 2%. Investors should consider this asset class for attractive income relative to other fixed income asset classes and equity-like returns, though with lower volatility.

BusinessWeek: High-Yield ETFs Lure Investors Bypassing Dealers – Institutional holders own 51 percent of BlackRock Inc.’s high-yield ETF, up 11 percentage points this year, according to data (HYG) compiled by Bloomberg. The portion at State Street Corp. (STT) (STT)’s fund hasgrown (JNK) to 60 percent, a rise of 18 percentage points.  “Liquidity is the main reason that we’re using high-yield ETFs right now rather than high-yield bonds,”

The Stock Sage:Hussman: “Treasury bonds are essentially a speculative asset here” – Snippets taken from John Hussman’s weekly market commentary:  we don’t view a 1.45% annual return for 10-years as an appropriate investment return, we have to recognize that Treasury bonds are essentially a speculative asset here. From his profile on Business Insider: John Hussman is a stock market analyst and mutual fund owner. He is known for his criticism of the US Treasury and the Federal Reserve and for predicting the 2008-2009 US Recession.

Doug Kass: Government Should Lock in Low Rates for the Long Haul – As I have recently written and as Harvard’s Lawrence Summers wrote over the weekend in the Financial Times, the U.S. should now borrow aggressively, extend debt maturities and lock in interest rates, similar to how our largest corporations have termed out their debt over the past few years.
Bloomberg: Biggest Buying Wave Defies Threat To Tax Exemption: Muni Credit – Individuals, who own about two-thirds of the $3.7 trillion municipal market, are adding the most money in three years to muni mutual funds. The demand is helping lower borrowing costs for local governments from California to Maine as they rebound from the worst recession since the 1930s.

Morgan Stanley: Monthly Bond Market Update “Expecting Fed Action” – Slower employment growth and worsening strains in European markets makes it likely that the Fed will mark down its already tepid forecast. This should provide all the justification the Fed needs to launch further unconventional policy action via changes in its balance sheet. Given the Morgan Stanley economic forecast, we estimate about a four-in-five chance this trigger is reached by the June 19-20 FOMC meeting.

Reuters MuniLand: Interview with California Controller John Chiang, the state’s chief fiscal officer

Barron’s: The Real Bond King Says “Buy” – Robert Kessler, head of the eponymously named Denver-based Kessler Cos., may rightly be dubbed the reigning Bond King for his steadfast — and fiercely independent — view that Treasury securities were the investment of choice against the overwhelming opinion of the crowd that asserted they offered no value as their yields continued to fall.  And even with the benchmark 10-year note yield hitting a record low of 1.53% Thursday, he says they’re still a buy.

Cullen Roche: The Dreaded Bond Vigilantes Are Coming –  Greenspan thinks so, Cullen Roche disagrees and says: The bottom line is, the reasoning behind the argument for surging interest rates just doesn’t add up. If anything, we’re looking more and more Japanese and not Greek.

Simit Patel: Why Capital May Finally Flee The Treasury Market This Year – The volume spike coupled with a steepening of price acceleration over the past few days suggests the potential that the rally in Treasuries may be reaching a point of exhaustion.

Bond Buyer: Muni’s Still Asleep After Weekend – Munis were steady to slightly weaker Monday, according to the Municipal Market Data scale. Yields inside six years were steady while yields outside seven years rose one basis point.

Marketwatch: Treasury Yields Rise from Record Lows – Yields on 10-year notes rose 6 basis points to 1.52%, heading back up after briefly retouching their all-time low of 1.44% earlier in the session. A basis point is one-hundredth of a percentage point. Yields on 30-year bonds increased 4 basis points to 2.56%, after setting a record low last week. Five-year yields added 5 basis points to 0.68%.


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