Is 1/8th of the US Economy About to Fall off a Fiscal Cliff?

Best of the Bond Market for May 14th, 2012

Mish’s Global Economics: California Deficit Soars to $16 Billion -  He offers a 4 point solution for dealing with the problem: 1. California needs to end collective bargaining of public unions 2. California needs to claw back promised pension benefits 3. California needs to end all defined benefit plans for public employee California needs to scrap prevailing wage laws that have crucified cities.

Barron’s: What California Crisis? Muni ETF Jumps to All Time High - California Gov. Jerry Brown tried to make clear over the weekend that his state faces a grave fiscal crisis. But the state’s battle-hardened muni bond ETF shows many yield-hungry investors have shrugged him off.  The $86 million SPDR Nuveen Barclays Capital California Municipal Bond ETF (CXA) hit a fresh all-time high just now at $24.60.

Doesn’t seem to jive with article in the Bond Buyer today:

Bond Buyer: Credit Quality Still a Key Attraction for Retail Buyers - “Retail investors are now clearly more driven by safety, bond structure and achieving geographic diversification,” Pietronico said. “While yield will always be of importance to retail investors, the problems surrounding sovereign debt in Europe have reshaped what many believed was ‘money good.’

FT: ETFs Will Transform Bonds -  ETF penetration of fixed income markets remains at an early stage. Around 2.2 per cent of US equity market capitalisation is held via ETFs but the equivalent figure for fixed income, a far larger market, is just 0.3 per cent.

Reuters: Chart Comparing Bond Yields to Dividend Yields Since 1950 - The yield on 10-year  U.S. Treasuries, fell to their lowest levels since early October today, breaking decisively below 1.80 percent. That compares to the dividend yield on the S&P 500 of 2.28%.

Bill Gross in FT: A Whale in the Water of Negative Yields - The developing credit cancer may be metastasised, and the global monetary system fatally flawed by increasingly risky and unacceptably low yields, produced by the debt crisis and policy responses to it. The great white whale lies on the horizon. Investors should sail carefully.

Bespoke: High Yield Spreads Holding Steady – Although US equities have been on the decline, high yield spreads, which usually rise as equities fall, have been surprisingly resilient.

I Heart Wall Street: My Uncle is Out of Gold and Into Bonds – For years he & my father have kind of served as a contra-indicator when it come to markets….He just sold his gold position and wants to put that money into US Treasuries now.

Investment U: Emerging Market Bonds: Less Risk Than You Think – For the first quarter for 2012, the average emerging bond fund tracked by Morningstar returned 7%, versus 0.3% for the Barclays Capital U.S. Aggregate Bond Index.

BlackRock:  May 2012 Municipal Bond Market Outlook- Highlights: Tax-exempt municipals posted positive results in April as weak economic data sent yields lower and prices higher, and as investors continued their search for yield. Fundamentals in the market look promising, with state revenue collections in fiscal year 2011 the highest since 2008. Demand for the asset class remains robust and should continue to outstrip supply.

Blackrock: In Depth Look at Treasury Inflation Protected Securities – Great detailed intro and overview of the product covering everything from mechanics, why investors should consider, what the breakeven rate is, historical and expected future performance and more.

Bloomberg: Boss Tweed’s Bondholder Revolt (h/t @Cate_Long) – How can excessive debt sink a government? Look no further than New York — in 1871, under the leadership of the eminently corrupt William M. Tweed.

NASDAQ: Three Former GE Affiliates Convicted in Bid Rigging Scheme – A federal jury in New York City convicted three former General Electric Co. (GE) affiliates executives for their participation in conspiracies related to bidding for contracts for the investment of municipal bond proceeds and other municipal finance contracts, the Department of Justice announced on Friday.

FT: Global Bank Bond Issuance has Fallen to Its Lowest Level in 7 Years – The fall in issuance comes as banks around the world are offloading assets, winding down businesses and increasing the amount of money they hold in reserve as they seek to meet regulatory requirements.

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