Anticipating the Fed…Junk Bonds Baby…and More!

Best of the Bond Market for June 19th, 2012

The Big Picture: Will the Fed Extend Operation Twist? We Say No. – The Fed has not been one to go for half-measures or small steps since the crisis began. If the outlook warrants more easing, we still see QE3 as the most likely tool chosen.


ETF Trends: Treasury, Junk Bond ETFs Diverge in Risk-On Trade – In bond ETFs, the recent action in funds tracking Treasuries and high-yield corporate bonds suggests investors are growing more comfortable with risk as stocks rally. (Treasury ETFs Selling off High Yield ETFs Rallying)

Michael Terry: High Yield – Steady as She Goes – The high yield market continues to have fundamentals that support its continued performance over the near-term. I would expect demand to continue to be strong across the unsecured and leveraged loan markets as investors seek out yield and companies are all too happy to supply it to them. It is, however, times like this when investor vigilance has to be high, looking for signs of weakness as complacency is the greatest risk.

Barron’s: As Equities Lag, Bondholders Risk Bearing the Brunt – Because equity performance remains weak at a time of strong corporate balance sheets, companies are increasingly pressured to make stockholders happy even at the expense of bondholders.

FT: The transformation of the corporate bond trading market – America’s $8tn corporate debt market is running out of its lifeblood – liquidity.  The banks cannot satisfy the buyside’s needs because they are reducing their own holdings of corporate bonds, partly because of a raft of new regulations proposed in the wake of the financial crisis.

ETF Trends: ETF Chart of the Day: iShares Barclays Intermediate Credit Bond – The iShares Barclays Intermediate Credit Bond (NYSEArca: CIU) has seen asset inflows to the tune of more than $700 million in recent sessions, which is equivalent to more than 15% of the assets outstanding in the fund.

CNBC: The Big Conundrum: Stocks or Bonds? – In this increasingly volatile market, some see stocks as having much better prospects than bonds, assuming Europe rights itself and the economic recovery finally takes off. Others believe the three-decade bull market for bonds still has legs.

The Motley Fool: Why the Fed’s Making a Big Mistake – Although policymakers obviously want to avoid the apparent folly of tightening monetary policy at a fragile turning point for the economy, there are a number of ways in which the long period of low interest rates has created disturbing trends — trends that are proving to be more counterproductive than useful in guiding economic behavior going forward.

IPREO: This Week’s Muni Deal Calendar

Bloomberg: Detroit Sewer Sale Sullied As City’s Stress Spreads – Detroit’s brush with insolvency may elevate borrowing costs for the city’s independently run Water and Sewerage Department when it sells $600 million of bonds, the agency’s biggest offering in nine years.

Learn Bonds: Bond Fund Winners and Losers Report  – The two highest performing fund categories were Long Government and Inflation-Protected Bonds.

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