Bill Gross is Back…Bond Bubble?…When TIPS Don’t Work…and More!

Best of the Bond Market for July 5th, 2012 

WSJ Video: Bill Gross the Bond King Once Again - Dow Jones Newswires’ Geoffrey Rogow visits Mean Street with a look at Pimco’s Bill Gross and the dramatic turnaround enjoyed by the firm’s Total Return Fund, the world’s biggest bond fund.

Barrons: Bond Bubble? Bah! -  “Bubble enthusiasts like to speculate what would happen to bond values if there were a repeat of the prolonged bear market of the 1970s and early 1980s,” Kochan writes. “A long list of fundamentals suggests that nothing close to that scenario is likely over the foreseeable future. The most likely scenario is another year or more of stable short-term interest rates, followed by a gradual and limited uptrend.”

Elliott Orsillo: TIPS, Not The Inflation Hedge You Might Think - even in a scenario in which inflation is moving higher, a TIPS investor can still lose money if nominal Treasury yields are rising faster than the implied future inflation rate which would cause the real yield to rise.

Reuters: How Stockton CA Went Bust – Deis, who signed Stockton’s bankruptcy filing last Thursday, slammed the decision to provide free healthcare to retirees as a “Ponzi scheme” that eventually left the city with a whopping $417 million liability.

Reuters MuniLand: The Debate Over Stockton’s Solvency - The hearings for Stockton, California’s bankruptcy have not even begun and one of the city’s bond insurers, Assured Guaranty, is already pushing back on Stockton’s claim of insolvency….. If the city is not insolvent, then a federal bankruptcy judge should dismiss Stockton’s Chapter 9 bankruptcy filing.

Learn Bonds: Is the 60/40 Rule all Investors Need to Know? -  While there is no “one size fits all” investment portfolio investors could do a lot worse than a 60% stock and 40% bond portfolio.  As bonds are not likely to outperform stocks in the future having the larger weighting of the portfolio in stocks also still make sense going forward.

BlackRock: Don’t Underestimate Interest Rate Risk – A 40 basis point increase like that can wipe out the total returns of an intermediate bond fund for a year.

Michael Terry: Ship Finance’s Bonds Look Attractive - The debt is very attractive given its high yield and short duration (a 1.3 modified duration with an 8.5% yield). With 18 months until maturity, the debt should be considered by short-term investors with a yield focus.

Businessweek: Porsche Bonds Rise Most in 4 Months After Volkswagen Deal - Porsche SE’s bonds rose the most in more than four months after Volkswagen AG (VOW) agreed to buy the 50.1 percent stake in the sports carmaker’s automotive business that it doesn’t already own.

Morningstar: Keep Noncore Bond Investments in Their Place – Even if retirees and soon-to-be retirees don’t keep their bond portfolios ultraconservative, it’s still worth remembering that bonds are there for ballast much more than they are for return generation.

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