Bonds Defy the Taper and Today’s Other Top Stories

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Bonds have gotten the year off to a great start, with yields on the ten-year Treasury note falling to 2.662%, the lowest level since Nov. 18, according to Tradeweb data.

Compare that to the stock market which continues to get pummelled thanks to yet more emerging-market jitters. SPX fell 0.15% today to 1791.55, down from 1850 two weeks ago.

Bonds have benefited as money flows from global risk assets to safe haven destinations. A move enacted by a realization of slowing Chinese growth and ongoing turbulence in some emerging markets, notably Argentina and Turkey.

The move has undermined the thesis that 2014 could prove to be a repeat of 1994, when bond markets collapsed in response to sharp interest rate rises, and comes in stark contrast to fears which gripped the bond market last May when the Fed first muted the idea of tapering its bond purchases.

Back then bonds sold off violently with yields on the ten-year climbing to 3% as the market became fixated on rising interest rates. Come January the Fed enacted the second taper in as many months which, in theory, should have sent yields on the ten-year higher.

Instead we have rising Treasury prices and falling yields as equities are selling off. Is this a sign of things to come? Not exactly, Treasuries have entered a bear market, which is not about to change anytime soon.

But its clear from this months price action that the decline in Treasury prices (and rise in yields) will be more of a gentle affair than the collapse of 20 years ago.

 

Todays Other Top Stories

Municipal Bonds

Fort Mill Times: – Proposed HQLA rules may affect muni market liquidity. – The proposed high quality liquid asset (HQLA) rule could negatively affect liquidity in the municipal bond market.

Governing: – Will the 2014 muni market be good for issuers? – When he looks back at last year, George Friedlander, chief municipal strategist at Citigroup, sees it as “one of the most challenging years” on record for the municipal bond market.

Barron’s: – Three’s a trend: Muni funds see third straight weekly inflow. – Muni-bond mutual funds and ETFs officially have a genuine winning streak going, reporting a third straight week of net inflows, per Lipper data, as investors return to the muni-bond fold amid this January bond rally.

Baltimore Post Examiner: – Puerto Rico’s economy in severe crisis. – José J. Villamil, one of Puerto Rico’s leading economists, offered a grim assessment of the island’s fiscal health during a lecture Tuesday at Washington’s Center for Strategic & International Studies.

 

Education

LearnBonds: – Emerging market corporate bonds. – Emerging market corporate bonds carry a high degree of risk, one of the highest of the global bond market, but offer the potential for very high yield.  They are excellent for investors looking for assets that are based in fast-growing emerging market economies.

 

Treasury Bonds

WSJ: – Treasury yields slip to new 2014 lows. – U.S. Treasury prices rallied as lingering concerns about global growth and emerging-market policies boosted investors’ appetite for safer assets.

WSJ: – As Treasurys rally, investors reassess. – Despite widespread predictions of a sharp selloff in Treasurys this year, government bond prices have actually risen. And that has driven traders and investors to rethink their outlook for the rest of the year.

 

Corporate Bonds

BusinessWeek: – Credit swaps in U.S. fall as economy grows; Verizon plans bonds. – A measure of U.S. corporate credit risk declined as data showed the economy expanded at a 3.2 percent pace in the fourth quarter and Americans’ spending climbed. Verizon Communications Inc. (VZ:US) is planning a bond sale.

WSJ: – Verizon sells $500 million in debt. – Verizon Communications Inc. sold bonds Thursday for the first time since selling $49 billion in September of last year in the largest corporate bond on record.

 

High Yield

WSJ: – Junk bond issuance slows in Europe. – European companies with weaker credit ratings are selling bonds at the slowest pace in five years even as borrowing costs remain around the lowest on record. Since the start of January, European firms with sub-investment grade—or junk—ratings have issued $3.6 billion of bonds, below one-third of what was sold in the opening weeks of 2013 and the lowest at this stage of the year since 2009, according to data provider Dealogic.

Forbes: – High yield bond funds see $909m outflow, all via ETFs. – Retail cash flows to high-yield funds dived into the red this week, with a $909 million withdrawal in the week ended Jan. 29, according to Lipper, a division of Thomson Reuters. However, it was essentially all outflow from the ETF segment, at 99% of the total, or $902 million.

 

Emerging Markets

Quartz: – Will the emerging market rout get even worse? Watch corporate bonds. – Global investors have suddenly remembered that emerging markets have a rich, recent history of florid financial crises.

DealBook: – Emerging markets inflow numbers point to exit by bond investors. – With investors on edge following the recent weeks of turmoil in emerging markets, the release this week of updated capital inflow data by the Institute of International Finance could not have been better timed.

 

Catastrophe Bonds

Artemis: – More state & government backed catastrophe bonds expected. – We should expect to see more catastrophe bonds being issued by state and government backed insurance entities in the future, as investor demand remains high and costs of sponsoring a cat bond come down, according to Fitch Ratings.

 

Investment Strategy

ETF Trends: – Fixed income ideas for the next cycle. – If the traditional fixed income indices like the Barclays U.S. Aggregate Index or the IBoxx US Dollar Investment Grade Corporate Bond Index are no longer the ideal fixed income investments for the next cycle, then what exposures should investors consider as alternatives?

 

Bond Funds

CNBC: – Cramer: There’s something you should know about bonds. – There’s something you should know about bonds. Jim Cramer isn’t sure you should lean on them as a big part of your retirement plan.

Morningstar: – Should you consider a convertible-bond ETF? – This convertible-bond ETF might offer attractive risk-adjusted return compared with traditional equity investments.

MarketWatch: – 3 ETFs for 2014 from strategists at Vanguard and ETF.com. – MarketWatch talked to ETF.com’s Matt Hougan and Vanguard’s Joel Dickson at this week’s big ETFs conference, getting their top picks for the not-so-new year.

MarketWatch: – The bond market short-squeeze is making it cheaper to get a mortgage. – Bonds have staged an incredible rally this month, pushing Treasury prices higher. Yields on the benchmark 10-year note are down from over 3% at the beginning of the year, to 2.7% on Thursday. As yields fall this month, you may have noticed it’s getting cheaper to take out a mortgage.

 

 

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