Muni Market Den of Thieves….Felix Salmon Questions Floating Rate Notes…and More!

Best of the Bond Market for August 3rd, 2012 Are municipal bond issuers so currupt that the system is beyond reform? – The SEC mission does not explicitly include protecting taxpayers from unscrupulous politicians, bureaucrats, bond dealers, financial advisers, consultants or any other predators who have turned a solid house of prudent public finance into a den of thieves.

Felix Salmon: Why would the Treasury want to issue floating rate notes? – If a country is borrowing in someone else’s currency, then I can absolutely see why floating-rate notes can make a lot of sense for both issuers and investors. But the U.S. borrowing in its own currency? I really don’t see it. It might well provide some nice profit opportunities to the dealers who sit on Sifma’s Treasury Borrowing Advisory Committee. But I’m far from convinced that Treasury should listen to them.

Distressed Debt Investing: These are interesting times to be a credit / distressed investor.  Plus some interesting comments on Knight Convertible Bonds.

Learn Bonds: Same credit rating but much higher yields. What gives? – Financial Bonds have Lower Default Rates AND Higher Yields. Here’s Why.

Bondsquawk: Are the Fed’s actions being cancelled out by the Treasury? – while the Fed tries to reduce the availability of long-duration assets in the market, ODM tries to increase its supply seeing a shortage, as financing costs of these assets will be lower for the ODM.

Sacramento Bee: Stockton is the new muni market pricey government employee pensions battleground.  – Wall Street lenders say they’re getting a raw deal in Stockton’s bankruptcy, losing millions while the city continues to fund pricey employee pensions.

Businessweek: New regulations are putting a big damper on bond market volumes. – Fund managers are struggling to pry loose bonds in the secondary market as new regulations to curb risk fuel an 82 percent decline in corporate-bond inventories at primary dealers since 2007.

Business Insider: PIMCO’s Mohamed El-Erian wears the same thing every NFP day – think he’ll change when he likes the data better?

Index Universe: The spread of some of the less liquid ETFs has widened signficantly as a result of Knight’s troubles – almost no effect on ETFs that trade more than 50,000 shares a day though.

Rajiv Tarigopula: With a 6% yield and no call option, these Bank of America bonds look enticing. – many of the BAC corporate debt securities listed on the market ostensibly yield higher than 6%, but many are callable and have a yield to worst in the sub-1% range.

Pragmatic Capitalism: Why US municipal bonds are not going the way of European Sovereigns. – the US government, which can always procure funds via taxes and bond sales therefore making solvency a non-issue, provides substantial federal aid to the states every year.

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