A Bad Bond Auction…A Bad Bond Chart…A Bad Bond Market Call…and more!

Best of the Bond Market for August 8th, 2012

Reuters: The bid to cover ratio in the latest 10 Year treasury auction was the worst in since 2009 - The U.S. Treasury Department felt the sting of its worst 10-year note auction in three years on Wednesday as investors and some dealers stayed on the sidelines due to diminished anxiety about the U.S. economy and the debt crisis in Europe.

All Star Charts: Technicals on the 10 year are not looking so good for the bond bulls – The latest false move we could be witnessing is in US 10-year yields.  See article for chart.

Business Insider: Meredith Whitney tries to back out of her disastrous muni market call - contrary to what you might think, Meredith Whitney, the CEO of Whitney Advisory Group, said this morning on CNBC’s “Squawk Box” that she does not advise her clients on municipal bonds.

Sober Look: There are several signs that the junk bond market is overheating.  shares outstanding of BlackRock’s iShares iBoxx $ High Yield Corporate Bond Fund ETF (HYG) hit another record ($16 billion of AUM) as retail inflows accelerate.  Such aggressive valuations and tremendous retail participation make this market a prime candidate for a correction.

Learn Bonds: Sell Penn State bonds while the alumni are rallying - The university appears to be thriving following the Sandusky scandal, instead of suffering. However, we think the positive stats mentioned above are short-term phenomena directly related to the scandal.

Bloomberg: The argument in favor of bringing back Build America Bonds - The traditional approach to subsidizing state and local bonds is to allow the interest to be excluded from federal taxation. The problem with that strategy for both efficiency and fairness is that the tax break varies with the bond purchaser’s marginal tax rate.

WSJ: Want rental income without owning any real estate?  There’s about to be a bond for that.  - Banks and real-estate investment firms in recent months have been working furiously to try to create a new type of bond. They want to package thousands of rental payments made by tenants living in previously foreclosed homes into securities and then sell them to other investors.

Reuters: Municipal bond volume up in the 3rd quarter with Puerto Rico muni bonds the most actively traded – The average daily par amount rose to $6.92 billion in the second quarter, the highest level since the fourth quarter of 2010, according to the MSRB.

Economic Musings: Is the Fed looking at doing an “MBS Twist”? – An astute Credit Suisse analyst pointed out this week that the Fed could perform a “MBS Twist” operation in which they sell up in coupon premium MBS pools and buy lower coupon MBS which could have the affect of lowering mortgage rates to borrowers.

Bloomberg: Speculative grade companies are in their best position ever to meet their debt obligations - Moody’s Investors Service said Aug. 1 its Speculative-Grade Liquidity-Stress index, which falls as corporations’ ability to manage cash needs improve, dropped to 3.1 percent in July, beating the previous record low of 3.3 percent in May. The New York-based ratings firm sees the U.S. default rate peaking at 4 percent in October before falling to 3 percent by June 2013, below the historical average of 4.6 percent since 1992.

Morningstar Video: Why TIPS may not be as safe as you think

Peter Schiff: Video – The coming “catastrophe” in the bond market

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