Banks Double Investment in US Treasuries….How to Position for Rising Rates…and more!

Best of the Bond Market for August 20th, 2012

SFGate: – Banks double investment in U.S. Treasury Bonds - With the economy still tanking and showing little sign of recovery, banks are taking refuge in U.S. Treasury Bonds. The major U.S. banks have bought $136.4 billion in Treasury and government agency debt so far this year, more than double the $62.6 billion for all of 2011.

IndexUniverse: – ETF opportunities – is your portfolio ready for a rate rise? – Interest rates won’t remain low forever, either growth or inflation will pick up and the Fed will be forced to raise the discount rate. So, make sure you’re ready for the inevitable.

Bloomberg: Judge rules rating agencies must face subprime fraud claims – Moody’s Corp. (MCO) and Standard & Poor’s lost a bid for dismissal of fraud claims in a suit by investors claiming the companies falsely assigned inflated ratings to notes sold by Morgan Stanley (MS) that were backed by subprime mortgages.

Minyanville: Expect a short term rally in the 10 Year before a resumption of the recent selloff - My ultimate target for the bigger picture correction is still at around the 1.949% level on the 10-year T-Note.  However, before we see yields go up there, we’ll likely see a give back of some of the recent upside.

Learn Bonds: 5 reasons the student loan crisis is nothing like the mortgage crisis

Business Insider: Moody’s says more than 10% of CA cities have already declared fiscal crisis’ - Now, investors are starting to wonder if cities are using bankruptcies as a way to shirk their debts.

Business Insider: Chart of inflation 1872 to present

Bloomberg: – U.S. Treasury 30-Year yields are down from 3 month high – Treasury 30-year yields fell from their three-month high after the European Central Bank (ECB) said it hadn’t yet discussed a plan to target bond yields of European member states, fueling concerns that European leaders are failing to stem the crisis.

MarketWatch: – Treasury’s pare losses after conflicting ECB report – U.S. Treasury prices pared a decline on Monday, after the European Central Bank (ECB) called a recent report in Germany’s Der Speigel misleading. The report stated that the ECB was considering a plan to cap euro-zone government-bond yields.

Bloomberg: – Middle market companies set for cash boost as investors seek an alternative to low junk-bond yields. – Legg Mason, the Baltimore-based money manager, is starting a fund to invest in loans to middle-market companies. “The market has a lot of growth in front of it,” said Chris Flynn, managing director at THL Credit Advisors LLC.

Time: Are junk bonds Wall Street’s latest bubble waiting to burst? – With interest rates so low investors are increasingly looking for more risky propositions to get returns. This has led to an influx of money into junk bonds, leading some to speculate that the market has become overheated.

Seeking Alpha: – Take a look at these seven bonds that offer up to 8% yield – These individual bonds are either trading at a discount to par or are trading close enough to par that the yields still make sense.

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