Bill Gross vs. BlackRock…Muni Market Threats….A Junk Bond Bubble Chart…and More!

 

Best of the Bond Market for October 12th, 2012

The Fiscal Times:Bill Gross vs. BlackRock on the risky bond market. – Looking for guidance on how to play the bond market in this low interest rate environment? Don’t look to the pros – even they can’t seem to agree which is the worse threat, interest rate risk or credit risk.

Citigroup: – Society of Municipal Analysts Presentation - Threats and challenges to the municipal bond market.

Paweł Morski: A Must see chart on Junk Bond Fund flows

WSJ: Best bond bets depending on who’s the next president - “Romney would appoint a new Fed chairman who is more hawkish than Bernanke, which puts into question their pledge to keep rates low until mid-2015,” said John Briggs, a U.S. Treasury strategist at RBS Securities.  Here is how to play different sectors of the bond market under each scenario.

Bloomberg:Company bond sales in US sink 63% amid concern earnings peaked. – Sales of corporate bonds in the U.S. fell 63 percent this week and relative yields narrowed as companies began reporting third-quarter results amid mounting concern that earnings have peaked.

Reuters:Investors throw caution to the wind and invest in Discovers preferred offering in a desperate search for yield. – Institutional and retail bond investors pounced on Discover Financials preferred offering this week for its 6.5% yield, shrugging off its single B+ rating from Moody’s and Fitch and their own exposure to maturity extension risk if Treasury rates rise.

MarketWatch: Bond buys may have diminishing returns. – Federal Reserve Gov. Jeremy Stein said Thursday that bond buys have diminishing returns, because even though it encourages refinancing, it doesn’t change the hurdle rate on capital-structure investment, which is determined by the expected future path of short rates.

Financial Post:Bond bulls face tough decision. – Faced with yields at or near all-time lows in virtually all sectors, and the U.S. Federal Reserve pledging to keep short-term rates near zero for the next three years or so, fixed-income investors must accept that the returns on short-term Treasuries are virtually certain to be negative when adjusting for inflation.

Reuters: Treasuries rise after data shows muted core inflation. US Treasuries prices rose on Friday, with benchmark yields on track to fall for a fourth straight session after U.S. producer price data signaled underlying inflation remains muted due to sluggish demand.

WSJ: – Emerging-Market Funds Draw Continued Investor Interest. – Investors funneled more fresh capital into emerging-market funds in the latest week, with bond-fund inflows hitting a 35-week high. Investors continued to pile into emerging-market assets in the week ended Oct. 10, as a calmer market backdrop helped them focus on these economies’ stronger growth outlooks and higher yields.

FT:Funds warn of end to ‘junk’ bond rally. – A rally in the riskiest part of the US corporate bond market that has pushed yields to record lows may have run its course. Fund managers are warning that rates on “junk” bonds may not compensate investors for the risks associated with investing in such securities.

Learn Bonds:10 Lessons I learned from the Book Abnormal Returns by Tadas Viskanta. – If there’s one thing I’ve learned over many years of investing it’s that there’s no secret to success. So it’s refreshing to find a book that doesn’t claim to have the holly grail, but instead focuses on building a framework for success. So here’s 10 things I learned from Tadas Viskanta.

AdvisorOne:Bond funds flooded with cash as quest for income, yield continues. – Bond funds took a big leap in September, with two tracking firms reporting heavy gains in flows for the fixed-income sector. PIMCO gained the most assets for September, followed by DoubleLine.

Bond Buyer:When is a go not a go? – General obligation bonds, long considered the gold standard for safety, have become increasingly tarnished as the nation’s largest municipal bankruptcy plays out in Alabama.

Quartz:QE3 is Ben Bernanke’s masterstroke of market manipulation. – Much has been written about the Fed’s announcement of its latest effort to support the US economy with a new round of money creation and mortgage-bond buying—QE3—on Sep. 13. But few have recognized that it amounted to a shot across the bow of some of the biggest financial institutions in the country.

StockHouse: Why Bill Gross is Worried - The age of credit expansion, which led to double-digit portfolio returns is over. The age of inflation is upon us, which typically provides a headwind, not a tailwind, to securities prices – both stocks and bonds.

 

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