Best of the Bond Market for July 6th, 2012
The Big Picture: The Health Care Decision and the Muni Health Care Market – The ruling should benefit not-for-profit hospitals, as well as for-profit ones. One of the benefits of increased health insurance coverage is that the amount of uncollected bills from hospitals should decrease over time. Overall, the number of insured patients should rise as the benefits of insurance expansion help the utilization rate of hospitals across the board.
ETF DB: ETF to Watch – Barclays 20 Year Treasury Bond Fund (TLT) – From a technical perspective, TLT is undoubtedly in a long-term uptrend, although improving economic indicators may spark another correction for this ETF and bring it back down near its 200-day moving average (yellow line) just as it did in the first half of March of this year.
BlackRock: The Outlook for Munis – Although tax-exempt municipals have posted positive results year-to-date, they have underperformed Treasuries recently as investors flocked to the relative safety of government issues. Muni-to-Treasury yield ratios are now very attractive across all maturity ranges.
AllianceBernstein: How Large an Allocation to Global Bonds? – Adding even 10% to 20% of nondomestic bonds significantly improves the risk-adjusted return potential of a portfolio. The incremental improvement in return/risk ratio from adding more nondomestic exposure generally diminishes after reaching a 50/50 blend, our research suggests.
Bloomberg: Stockton Creditors Hold Few Weapons In Bankruptcy Fight – Stockton is trying to become the first American city to use bankruptcy to successfully impose losses on bondholders. Bondholders will be limited to two main options if they are to block Stockton in court, said Lee Bogdanoff, a bankruptcy attorney: get the case thrown out or defeat the city’s reorganization proposal.
Learn Bonds: Don’t know your mutual fund share class? You could be missing out. Before purchasing a mutual fund either directly from the mutual fund company, through an online broker, or through your financial advisor you want to make sure you understand what share class you are purchasing and what fees and minimums are applicable.
Barrons: ETF Industry Just Finished its Best Half Ever – Driving the inflows once again was the perceived safety of bonds. Fixed income grabbed a net $42 billion of global inflows, edging out the $41 billion flowing into developed-markets equity funds.
Y Charts: Psst – No, You Don’t Have to Settle for Inflation-Lagging Treasuries – Municipal bonds currently offer a far better deal. The current yield on a AAA-rated 10-year municipal bond is 2.05%. That interest payment is free of federal tax. If you’re holding your U.S. Treasuries in a taxable account you know full well that the IRS takes a bite out of your earned interest. All Treasury bond interest is taxed as ordinary income. So right off the bat the 2.05% yield on the municipal bond beats the Treasury yield. Add in the tax break and you are looking at an even better deal.