Bill Gross’s Monthly Outlook…Budgetary Crystal Meth…Inflation Alarm Fading…and more!

Best of the Bond Market for October 2nd, 2012

PIMCO:Bill Gross’s monthly investment outlook. – In PIMCO’s recent investment outlook, Bill Gross said. “If we continue to close our eyes to existing 8% of GDP deficits, which when including Social Security, Medicaid and Medicare liabilities compose an average estimated 11% annual “fiscal gap,” then we will begin to resemble Greece before the turn of the next decade.”

Bloomberg:Budgetary Crystal Meth’ Risks US Haven Status, Says Bill Gross. –Pacific Investment Management Co.’s Bill Gross said the U.S. will no longer be first destination of global capital in search of safe returns unless the gap between spending and debt is addressed.

Bloomberg:TIPS show inflation alarm fading as options give Fed time. – Bill Gross, who runs the world’s biggest bond fund, says the Federal Reserve’s open-ended plan to flood the economy with $40 billion a month will ignite inflation. The options market is signaling that won’t happen anytime soon.

Forbes: Why you should buy municipal bonds, especially if Obama Wins - An Obama victory will stoke fear of higher taxes on dividends and ordinary income, and drive a rotation out of investment grade and high-yield corporate bonds and into municipal bonds.

Ploutos:The high-yield corporate bond conundrum. – High yield bonds continue to perform well as investors take on risk in search of yield, but with speculative grade bond yields trading at their largest premium to stocks on record, is it a risk worth taking?

Bloomberg:House Republicans hesitant to alter muni tax status. – A Republican on the U.S. House’s tax- writing committee said his party is hesitant to curtail the tax exemption for investors in the $3.7 trillion municipal market, which has been a concern among bond buyers.

IndexUniverse:Video: Bill Gross at Inside Fixed Income. – Gross was the keynote speaker at IndexUniverse’s Inside Fixed Income conference, and covered a wide range of topics in his nearly hour-long appearance, including Pimco’s “new normal” thesis on how the developed world is in for a period of relatively slow growth, and how the Federal Reserve will extricate itself from the easy-money policies it has embraced since the economy collapsed in September 2008.

TheAtlantic:What the Fed’s historic bet means for you. PIMCO’s Mohamed A. El-Erian says. “Those of you with financial assets are generally better off for now, having benefited from an immediate boost to your portfolios (including retirement accounts). Beyond this, however, the outlook is much more uncertain.”

Bloomberg:Health-Care gain defies $11 billion Medicare threat. – Municipal bonds sold by hospitals and health-care providers are rallying the most since 2009, defying a potential $11 billion drop in Medicare funding from federal budget cuts that loom in three months.

Bond Squawk:Limited supply may drive gains for long dated municipal bonds. – The mad rush to acquire funding fueled by low interest rates and the uncertainty surrounding the Fiscal Cliff scheduled for the onset of 2013, should translate to outperformance for holders of longer-dated municipal bonds as yields fall.

PublicCEO:Transparency could improve confidence in the muni market. – In late July, the Securities & Exchange Commission (SEC) issued a comprehensive, 150-page report on how municipal bond issuers could be more transparent. If the report’s recommendations ever get implemented, they could ease the uncertainty that some muni investors have felt the last couple of years.

Learn Bonds:How much can I withdraw per year from my retirement account? – This is an important question and one far too little time is spent thinking about. So what’s the answer? We’ll show you.

FT:Bond trading model shows signs of stress. – Bond trading, once the darling of Wall Street, has become much more difficult for dealers in recent years. The old model, where dealer banks acted as middlemen for the buyside investors who wished to purchase and sell bonds, is showing signs of stress.

MarketWatch:Investors shifting to municipal bonds as a safe haven. – Municipal bonds continue to be one of the bright spots for U.S. fixed-income investors, said Dan Heckman, senior fixed income strategist with U.S. Bank Wealth Management. The credit quality is improving and a broader range of investors are becoming interested in the sector, which bodes well for prices, he said in an interview Monday.

Alliance Bernstein:Emerging Markets Bonds are up 25% while Emerging Market stocks are down. – It doesn’t seem to make sense. Superior macroeconomic fundamentals in emerging countries have not led to stronger or even positive equity returns over the last two years. Since the beginning of 2011, the unhedged return in US dollars of the MSCI Emerging Markets (EM) Index has been (10)%, while the MSCI World Index has delivered 6.5%. What’s going on?

 

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