Bond Market Discovers Internet, A CPI Surprise, Stockton CA and More!

WSJ: Large Institutions Discuss New Marketplace for Bonds – In recent weeks, senior traders at investment managers and big Wall Street banks have been discussing how the financial industry can set up a centralized electronic market that would let all participants trade bonds freely with one another, according to people involved in the talks.

BusinessWeek: Consumer Prices in U.S. Fell in May by Most in Three Years – The consumer-price index declined 0.3 percent, more than forecast and the biggest drop since December 2008, after no change the prior month, the Labor Department reported today in Washington. Economists projected a 0.2 percent decrease, according to the median estimate in a Bloomberg News survey. The so-called core measure, which excludes more volatile food and energy costs, increased 0.2 percent for a third month.

Reuters: Moody’s bracing for default by city of Stockton, Calif. – The city of Stockton, California, faces a growing likelihood of defaulting on some of its debt obligations as the conclusion of confidential talks with its creditors aimed at averting bankruptcy nears, Moody’s Investors Service said on Wednesday.

Learn Bonds: Where Will the Next Jefferson County Style Default Happen?  – There are several candidates listed which all follow a common theme: To spur local economic growth, the city, town  and borough guaranteed loans or provided big incentives for real-estate development projects. While I am not saying avoid all municipalities that have big obligations from building an office building or stadium, I would be very careful.

ETF Trends: Muni Bond Yields Help ETFs Weather Price Swings – “The Barclays Municipal Bond Index returned 3.43% year-to-date, with an average coupon of 4.90%,” says James Colby, portfolio manager and senior municipal strategist at Van Eck Global. “This generated enough return to help investors weather momentary downturns in market value.”

Bond Buyer: Market Update – Deals Received Well, But Some Balances Remain – Munis continued to strengthen Thursday afternoon, according to the Municipal Market Data scale. Yields inside six years were steady while yields outside seven years fell as much as three basis points.  Treasuries were weaker after a choppy week. The benchmark 10-year yield jumped three basis points to 1.63% while the 30-year yield increased two basis points to 2.73%. The two-year was steady at 0.30%.

ETF Trends: TIPS ETF Lower After May CPI Decline – The $23 billion iShares Barclays TIPS Bond Fund (NYSEArca: TIP) was down 0.2% at last check.  The May CPI decline was larger than economists had expected and the biggest drop since 2008, according to Bloomberg News. However, core inflation excluding food and energy rose 0.2% for a third month.

Slate: Slate Article Suggests Rhode Island Should Default on Bonds Related to 38 Studies  – Perhaps the best path would be to take advantage of the fact that the 38 Studios bonds are moral-obligation bonds rather than general-obligation bonds, and simply default and refuse to pay. The big downside to defaulting is that it makes it much harder to borrow money in the future. But considering Rhode Island’s track record of debt-financed economic development schemes, that might be a blessing in disguise.

MarketWatch: U.S. sells 30-yr debt at 2.72%; bonds fall more – The Treasury Department sold $13 billion in 30-year bonds on Thursday at a record-low yield of 2.72%. Bidders offered to buy 2.4 times the amount of debt sold, compared to an average of 2.78 times at the last four comparable sales, according to CRT Capital Group.

YAHOO: Potential Fiscal Cliff Makes Municipal Bonds Even More Attractive – Another kicker on the appreciation side is the looming fiscal cliff. “If the Bush tax cuts sunset as we anticipate they might on December 31st, investors only have one asset class where they can get tax free returns.”

Barrons: Obscure LP Offers a 9% Tax-Free Yield – America First Tax Exempt Investors LP (ATAX) is sort of a hybrid of a mortgage REIT and a closed-end muni fund that’s flown under the radar (but not beyond the eagle eye of colleague Andrew Bary who brought the stock to our attention.) Its appeal: a yield over 9% that is exempt from federal income taxes.

The Big Picture: InfoGraphic – Sizing up the stock and corporate bond markets.

CNBC: Guess Who’s Buying all the Treasury Bonds (Its Not the Fed) – Mom-and-pop investors, and not the Federal Reserve, have been the ones most responsible for driving the mad dash to government debt, according to newly released data.

Bond Buyer: Crossover Buyers Skirt Munis Despite Ratios to Treasuries – Muni ratios to Treasuries are at cheap enough levels that normally would attract non-traditional, or crossover, buyers into the market.
But compared to corporate bonds, crossover buyers’ typical investments, munis just aren’t attractive enough, industry analysts said.  By the end of last week, “in the 30-year range, for example, double-A munis are around 3.40%, only 78% as much as double-A corporates, which are at 4.37%, or so,” Friedlander wrote.

Bloomberg: U.S. Housing Rebound Evident In Bond Yield Gap – Investors are accepting the lowest yields since the real estate boom peaked in 2005 on the debt of U.S. homebuilders relative to the rest of the junk-bond market as evidence mounts that housing is on the rebound.

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