A Summary of Bond King Bill Gross’ Monthly Comment…and More!

Best of the Bond Market for June 28th, 2012

PIMCO: Bill Gross’ Monthly Market Update Summary Below:

  • Not only banks and insurance companies but sovereign nations as well cannot all be counted on to guarantee a return of principal, let alone a return on investment.
  • An authentic debt crisis – which the world is now experiencing – can only be ultimately cured in two ways: 1) default on it, or 2) print more money in order to inflate it away.
  • There are very few clean dirty shirts in this world. Timing in investment markets is critical and at the moment the U.S. is considered to be the cleanest.
BusinessWeek: Gross Says Decades Needed to Normalize from Too Much Debt  - “Don’t underweight Uncle Sam in a debt crisis,” Gross wrote. “Money seeking a safe haven will find it in America’s deep and liquid, almost Aaa rated, bond and equity markets.”

Bond Buyer: Stockton Drama Heads for Court – The big question in the municipal bond market right now is how much of a hit will be borne by investors in a and insurers of the more than $300 million of bonds supported by Stockton’s general fund.

Reuters MuniLand: Stockton Hits the Wall - After Stockton missed several bond payments, the bank representing bondholders seized three city-owned parking garages and the city hall. They look prepared to protect their interests.  With the bankruptcy court ruling in the Vallejo case I can imagine that bondholders, or the bond insurers more particularly, may be ready to face off against retirees and CalPERS. CalPERS makes a formidable opponent, but bondholders might have sufficient resources and incentives to fight the pension behemoth.

Bloomberg: Redemptions Converge With Refundings Fueling Rally: Muni Credit - The $3.7 trillion municipal market is set for a sixth straight quarterly gain, the longest streak since 2007, according to Bank of America Merrill Lynch data. The securities have returned 1.9 percent since March 31. Another three-month advance would make the rally the best in 11 years.

Fox Business: $2.5 Billion ADT Deal Leads Corporate-Bond Issuance – For home-security-products provider ADT Corp., the stable tone was encouraging enough to issue a three-part, $2.5 billion deal, while serial issuer General Electric Capital Corp., a unit of General Electric Co. (GE), sold $1.5 billion of three-year notes.

BondSquawk: As Risks Remain, Corporate Bonds May Underperform –  investors should keep their powder dry until the risks over in Europe and concerns of both U.S. and global growth subside. By doing so, investors may have better opportunities to own corporate exposure at more attractive levels. In particular, a spread of 230-240 basis points on the Barclay’s U.S. Credit Index may be an attractive entry point when utilizing Bollinger Bands on an intermediate to long-term time-series analysis.

Sober Look: Frenzied Buyers of Investment Grade Corporate Paper - People are lending to CAT at 2.7% for 10 years! Who is buying this paper? Institutional investors of course, but also mutual funds, and ETFs. The ETF situation is particularly scary because it is driving some of these low yields and should be viewed as short-term money.

Learn Bonds: Target Date Funds: Should You Trust Them With Your Money?  - A dynamic mix of stocks and bonds which adjusts based on your age is likely going to be needed when saving for retirement, regardless of your specific situation.  Target date funds are a good place to at least start your research, so you can get an idea of what “standard” allocations look like.

Alliancebernstein: The Case for Going Global in bonds – Three of my colleagues—Alison Martier, Erin Bigley and Ivan Rudolph-Shabinsky—have recently published research indicating that investors in several of the world’s major markets have historically been able to achieve comparable returns—with significantly lower volatility—by globalizing their long-duration bond portfolios

Market Watch: US Sells 7 Year Debt at Record Low Bonds Up – The Treasury Department sold $29 billion in 7-year notes  on Thursday at a yields of 1.075%, the lowest level on record. Bidders offered to buy 2.64 times the amount of debt sold, compared to an average of 2.87 times at the last four sales of 7-year debt, according to CRT Capital Group.

Calculated Risk:  A QE Timeline

YAHOO Finance: Robert Prechter Says Another US Downgrade is Likely – Despite vows at the time to change their profligate ways, the U.S. has, if anything, gotten even more fiscally reckless in the nearly 11 months since the downgrade, raising the questions as to whether or not the existing AA+ rating is at risk.

Systematic Relative Strength: The Purpose of Fixed Income – Bonds are part of your portfolio as a placeholder.  You buy bonds when you don’t want the money to evaporate because you will need it later for an emergency, or because you will use it to buy other productive assets at a favorable price.  Mr. Bernstein doesn’t think you should buy bonds here and expect a return.

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