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Today’s non-farm payrolls report was crucial for the bond market, with bond bears hoping for a beat and bulls hoping the number didn’t come in too strong. In the end it was a draw, but the bulls won on penalties.
The Department of Labour announced that U.S. non-farm payrolls rose to a seasonally adjusted 192,000 last month, with the unemployment rate holding steady at 6.7%. Just below analysts expectations of 200,000 new jobs and a 6.6% employment rate. So how did the bond market react to the news?
Bonds were either positioned for a stronger employment report or are relieved that the recovery did not get too hot. Perhaps it’s the former as bond traders seem overly concerned on the timing of the first increase in short-term interest rates at the Fed.
As a result Treasury prices nudged ahead following this mornings report, with the yield on the 10-year benchmark shedding 4 basis points to 2.75% and a fall of almost 7 basis points for the ultra-sensitive five-year bond to 1.73%. Even the two-year yield eased by 3 basis points to 0.42% in the post-payroll relief rally.
If nothing else, the data confirms the recovery remains gradual, with the labor market adding more jobs over the winter than expected ahead of Friday’s report, yet inflation continues to play dead.
This small improvement shows the bond market is becoming more relaxed about the prospect of rising rates in the short term. If economic data keeps coming in at, or below par, it makes it less likely the Fed will raise rates sooner than had been expected.
Todays Other Top Stories
FA Magazine: – Puerto Rico and beyond: An analysis of the municipal debt of U.S. territories. – Municipal issuers are not limited to the states but also include U.S. territories such as Puerto Rico, Guam and the U.S. Virgin Islands. Puerto Rico’s high-profile fiscal struggle has been in the financial media lately. Much less well-known and reported upon are the municipal securities of the U.S. Virgin Islands and Guam. Here, we move beyond Puerto Rico and focus on all three.
Bloomberg: – Brown Brothers starts fund for investment-grade munis. – Brown Brothers Harriman & Co., the closely held asset-management firm, has created a new municipal-bond mutual fund as state and city debt is rallying the most in five years.
Bloomberg: – Pennsylvania schools shun debt amid austerity push. – Pennsylvania school districts are selling the least municipal debt in seven years as localities nationwide respond to calls for austerity even with yields close to generational lows.
LearnBonds: – Three must-buy income stocks for 2014. – Every year, between the end of December and April 15, I pore over the market looking for stocks to add to my portfolio that can provide reliable income with yields above 4%. But I don’t want just any high-income stocks, I want stocks to hold for at least five years with reasonable confidence they will maintain their high yields while preserving capital – and, hopefully, generating capital gains. Here are three must-buy income stocks for 2014.
Bloomberg: – Gross says job growth pace suggests Fed continues tapering. – Pacific Investment Management Co.’s Bill Gross said the pace of employment growth in the U.S. means the Federal Reserve will continue to wind down bond purchases and then consider raising interest rates.
Businessweek: – Treasuries set for weekly loss as Korea’s Meritz sees tightening. – Treasuries headed for a weekly loss before jobs data Meritz Securities Co. said will lead the Federal Reserve to further cut its debt-purchase stimulus and usher in a “tightening season” of higher interest rates.
Businessweek: – U.S. 5 year notes lead rally as March jobs gain trails forecast. – Treasuries rose after U.S. employers added fewer jobs than forecast in March, fueling speculation that growth in the world’s biggest economy remains uneven.
Morningstar: – Corporate bonds: Why bother? – A standard investing precept: Bonds add ballast to your portfolio, buffering it from harsh economic times, when stocks tank. But most don’t recognize that there are bonds and there are bonds. From a total portfolio perspective, corporate bonds don’t give you any better performance than Treasury securities, and corporate-leaning portfolios do worse in downturns than Treasury-laden ones.
Businessweek: – Prepare to fail buying bonds in sellers’ world. – Traders trying to purchase investment-grade notes are failing about 46 percent of the time, close to the worst rate in more than four years as measured by activity on MarketAxess Holdings Inc.’s electronic platform. On the flip side, investors trying to sell the debt are having the easiest time on record, with an 85 percent success rate.
Bloomberg: – Wind to ready biggest corporate junk bond since T-Mobile. – Wind Telecomunicazioni SpA will begin marketing 3.75 billion euros ($5.1 billion) of bonds today in the largest high-yield sale globally since T-Mobile US Inc. (TMUS)’s $5.6 billion issue in October.
Forbes: – High yield bond funds see $493M investor cash inflow. – Retail-cash flows for high-yield funds reversed course and turned squarely positive, with an inflow of $493 million in the week ended April 2, according to Lipper. The healthy infusion of cash was heavy in the exchange-traded fund segment, at 69% of the total TOT +0.88%, or $340 million.
Professional Adviser: – Sector report: Should high yield be on your radar? – Despite strong performance, the IMA Sterling High Yield sector has been overlooked by investors. Charles Younes, fund analyst at FE, explains why a re-evaluation is needed.
Millers Money: – Finding junk bonds that don’t stink. – Riddle me this: Why would anyone ever buy junk bonds or a junk bond fund? It’s Andrey Dashkov here, your chief analyst making another guest appearance in this week’s missive.
ETF Trends: – Investors want emerging market bond ETFs. – Despite concerns over developing economies, exchange traded funds that track emerging market debt continues to attract attention.
Businessweek: – Apollo betting on emerging markets with ex-JPMorgan trader. – Leon Black, who made billions by buying up debt of companies in the U.S. and Europe that others deemed worthless, is turning to emerging markets as the next source of growth for his $161 billion money management firm.
TradingFloor: – The EM-o-meter turns green. – Emerging market (EM) bonds were hit from the very first suggestion that the US Federal Reserve would taper its asset purchase programme and they have been under severe pressure ever since. Investors and market participants have cited the following four factors as the main reasons for this underperformance.
Lend Academy: – Prosper crosses $1 billion in loans Issued. – Today is a big day for Prosper. They have now issued more than $1 billion in total loans – crossing that milestone this morning. They have an official press release announcing the story and they also created this very cool infographic to celebrate. In addition they announced this giveaway on their blog last week that is ongoing.
Real Estate Investment Trusts
MotleyFool: – 4 Companies crushing the market that yield over 5%. – High yields coupled with price appreciation would be the Holy Grail for most investors. Real estate investment trusts, or REITs, own assets that may appreciate when interest rates rise. These underlying assets often become more valuable when interest rates are declining as well. In a nutshell, that is why so many long-term investors view REITs as an important asset class to include in a well-diversified portfolio.
Zacks: – 3 Treasury bond ETFs to play rising short term yields. – Long-term bond yields actually fell in the crucial period and thus emerged as true winners this year. ETFs targeting the high-end of the yield curve gifted nice returns in 2014 and are expected to behave in the same manner as the U.S. economy nears the end of the cheap-money era. Below, we have highlighted three long-term bond ETFs in detail which could be solid picks in the current environment.
ETF.com: – 3 Bond ETFs that stood out in 1st qtr. – Investors poured more than $11 billion into fixed-income ETFs in the first quarter of 2014, flocking to the safety of debt at a time when confidence in the stock market seemed shaken.
ETF Database: – ETFs with 6-year winning streaks. – It has been five years since the current bull run began, as the S&P 500 has gained 170% since its bottom in March of 2009. SPY, along with approximately 150 other funds, have enjoyed five straight years of gains as a result, but few can tout six years of consecutive gains.
MarketWatch: – Confused about bonds? You’re not alone. – While it seems that rising rates are inevitable we all need to step back as long-term investors and ask ourselves what role bonds should play in our (hopefully) balanced portfolios. Although it’s not likely that rates will increase dramatically in the near term, we do expect to see rates rise in the future if only because rates are so low now that the odds favor heavily increasing over decreases.
Gross: Higher participation rate holds #unemployment at 6.7%. If participation rate steadies or goes up, Fed Funds stay low.
— PIMCO (@PIMCO) April 4, 2014
Bond reaction to jobs showing mod pushback to Fed rate hike expectations. 5-7 Trsys rally & futures showing later start/slower path of hikes
— AnthonyValeri (@Anthony_Valeri) April 4, 2014
— David Schawel (@DavidSchawel) April 4, 2014