FED to Twist Again…Bonds and Stocks Play Chicken…and More!

Best of the Bond Market for June 18th, 2012

Marketwatch: Fed likely to Twist Again – The Federal Reserve is likely to extend its Operation Twist program at the end of its two-day meeting on Wednesday, a growing number of Fed watchers said over the weekend.

ETF Trends: Bond and Stock ETFs Playing Chicken – In other words, Treasury bonds are loudly signaling investor fears over deflation and the Eurozone debt crisis spiraling out of control. Meanwhile, stock ETFs aren’t mirroring the same level of anxiety.  Both can’t be right.

Prime Economics: The Grand Bond Canyon – In today’s post Greek election on-line Financial Times we learn that, far from bond markets celebrating the Greek election results by lowering rates, Spanish and Italian yields continue to soar upwards.

Bloomberg: Biggest Bond Traders See Worst Over For Treasuries – As the U.S. recovery slows and Federal Reserve efforts to boost growth expire, there’s no consensus among the biggest bond dealers that the central bank will begin a fourth round of economic stimulus with consumer and corporate borrowing costs already at record lows.

ETF Strategy: Yields, downside protection and fundamentals support case for high-yield corporate bond ETFs – Yields on high-yield corporate bonds currently far exceed those of US Treasuries, UK gilts or German bunds, issuances which Rodilosso says “are not immune to declining values in their own rights.” On downside protection, Rodilosso says that equities have had their yields pushed lower recently and have exhibited greater sensitivity than high-yield credit markets to downward moves in the economy.

Bloomberg: Junk Bond ETF’s Signal Demand for Electronic Bond Trading – Trading of exchange-traded funds that focus on junk bonds is soaring while volume in the underlying securities slumps as dwindling dealer holdings prompt investors to seek electronic platforms.  Volumes in the two biggest ETFs in June have climbed 22 percent above the six-month average while overall trading for the debt has sunk 9 percent, according to data compiled by Bloomberg.

Barrons: Bill Gross Says Germany Not Attractive, Spain not Safe – PIMCO‘s Bill Gross got a bit shirty with Europe on Monday, calling Spanish bonds “not a safe environment” and urging caution even when it comes to Germany, all the while weaving a thread of laundry metaphors through his criticisms.

Bond Buyer: Market Post: Munis Steady As Primary Looks to Get Going – Munis were mostly steady, according to the Municipal Market Data scale. Yields inside 12 years were steady while yields outside 13 years fell one basis point. The two year yield and the benchmark 10-year yield were steady at 0.29% and 1.59%. The 30-year yield dropped two basis points to 2.68%.

Marketwatch: CUSIP ID Requests Project Active Bond Issuance in US Corporate & Muni Markets – Municipal CUSIP requests rose 6% over April’s figures with 1,729 identifier requests made during the month of May.  Year-over-year, municipal CUSIP requests have climbed 56% in the first five months of 2012.  CUSIP requests for US corporate securities increased in May with 2,116 identifiers requested, compared with April’s count of 1,843.  Total corporate CUSIP volume is up 12.1% for the first five months of 2012 over the same time period last year.

Learn Bonds: The 10 Best Bond ETF Sites on the Internet

Sober Look: Why Investors Have Been Willing to Hold Long Term Treasuries – What many advisers point out is that long-term treasuries can significantly reduce portfolio volatility – acting as a hedge. And investors are willing to live with the poor returns and asymmetric payout profile (paying insurance premium) in return for stabilizing their portfolios.

WSJ: Are High Yield Muni’s Headed for a Fall?  – They worry that the sluggish U.S. economy could put additional stress on municipal finances and that states could continue to cut funding to local governments. That could send investors rushing back into higher-quality bonds and cause the prices of the riskiest munis to plummet.

WSJ: SEC’s New Credit Rating Office Opens as Pressure Mounts on Firms – The SEC announced on Friday it is launching the new Office of Credit Ratings, as required by the Dodd-Frank Act, naming former Morgan Stanley Smith Barney executive Thomas Butler as its director. The new office will centralize oversight and annual examinations of credit-rating firms.



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