Best of the Bond Market for October 23rd, 2012
Dealbook: Bernanke to leave Fed regardless of who wins? – Mr. Bernanke, whose term as chairman ends in January 2014, in just over 15 months. However, Mr. Bernanke has told close friends that even if Mr. Obama wins, he probably will not stand for re-election.
Bondsquawk: High yield default rate drops after quiet month – There were six high yield companies totaling $2.5 billion that defaulted in the third quarter. This is a significant decline from 2011 as there were two companies totaling $5.8 billion that defaulted in the third quarter of last year.
BusinessWeek: – Ohio returns go from worst to first. – Debt from Ohio and its localities has earned 8.6 percent this year, most among states, Standard & Poor’s data show. In 2008, when President Barack Obama won back the White House for Democrats during the longest recession since the 1930s, Ohio bonds lost 9.6 percent, the steepest decline nationwide.
BusinessWeek: – Bernanke seeks more market exuberance with stimulus. – Federal Reserve Chairman Ben S. Bernanke is trying to inject a little of the exuberance his predecessor Alan Greenspan called “irrational” into markets for everything from stocks to housing.
Reuters: – Bond market near end of bull run. – The U.S. bond market is in the “final inning” of a three-decade bull run, with investors likely to pile into stocks and withdrawing from bonds in 2013, a Bank of America Merrill Lynch analyst said today.
Cate Long: – Who’s the “Muppet” now? – Greg Smith may have set the cat amongst the pigeons with his expose of the operating practices at Goldman Sachs. Goldman regularly referred to their clients as “muppets” according to Smith. Who are those clients? Mainly State pension funds and non-profits of course. In muniland we don’t have enough information to link Goldman Sachs or other big banks to specific interest rate deals. But a cluster of banks just plowed a long row of unsuitable deals through muniland and planted some really bad seeds. Question is, where are those seeds and when will they shoot?
CFA Institute: Interest rates move in generation like intervals - From 1861 to 1899 rates fell, and the United States enjoyed a 38-year bull market in bonds. Painfully long bear markets included the periods 1900–1920 and 1946–1981. In the current bull market — which started in 1981 and is now 32 years old — “interest rates have fallen, and they can’t get up.
NASDAQ: – Tax proposal has potential consequences for muni bond ETFs. – The Congressional Committee on Taxation recently released a report including revenue-generating ideas. In that report was a proposal that gained some attention earlier in 2012. That proposal is the repeal of the interest deduction for municipal bonds, a move that if it comes to pass could prove punitive for municipal bond ETFs.
ETF Trends: – Municipal Bonds for America’ set-up to protect the tax-exempt status of muni bonds. Why should you care? – In response to the Congressional Committee on Taxations recommendation that tax relief on muni bonds be repealed, a coalition of municipal market professionals is forming an alliance called “Municipal Bonds for America.” Its premise will be to protect the tax-exempt status of municipal bonds. But why is preserving this entitlement so important?
Barrons: – PIK toggle bonds don’t signal end of the world for high yield. – For anyone not familiar with the term, PIK toggle bonds are a type of bond that basically allows the issuer to decide whether to pay interest in the form of cash (good!) or more bonds (bad!), naturally that makes them a risky prospect. So when these bonds started appearing with some regularity, many have taken it as a sign that investors are losing their discipline as they scavenge for yield.
Reuters: – Hot bond market spurs debate about bubble. – US bond issuance in 2012 topped the USD1trn mark last week, pushing the year’s total closer to the all-time record in 2007 – set just before the global financial crisis kicked in.
Learn Bonds: – The chart that shows inflation may not be around the corner. – There seems to be tremendous confusion between asset price inflation and consumer inflation. “Printing Money” has caused asset price inflation. Specifically, the price of financial assets (stocks, bonds) and real assets (commodities, real estate, gold) have all risen as a result of the FED’s actions. However, the amount of trickle down to prices that families pay for rent, cell-phones, cable and transportation may be limited.
BondBuyer: – Buying opportunities in the muni market. – Tom Metzold, co-director of municipal investments at Eaton Vance, sits down with The Bond Buyer’s Taylor Riggs to discuss buying opportunities in the muni market, muni bond inflows, and uncertainty surrounding the fiscal cliff.
MarketWatch: 2 Year treasury auction sees strong demand – The Treasury Department sold $35 billion 2-uear notes on Tuesday at a yield of 0.295%, the highest since June, which helped draw strong demand. Bidders offered to buy 4.02 times the amount of debt offered, compared to an average of 3.79 times at the last four auctions.
Reelection of the incumbent in Puerto Rico will encourage buying & spread tigthening of the island’s bonds despite cont credit issues (1/2)
— Muni Market Advisors (@Muni_Mkt_Advis) October 23, 2012
Gross: Fed may shift from “extended period” language 2 nominal GDP target or something close. If not 2morrow then Dec. Would be reflationary
— PIMCO (@PIMCO) October 23, 2012
— Cate Long (@cate_long) October 23, 2012
— SIFMA (@SIFMA) October 23, 2012