China to Lose Top US Lender Spot…Bill Gross Hates Bonds….Investors Dump Junk…and more!

Best of the Bond Market for October 17th, 2012

Bloomberg: – China set to lose top US lender spot to Japan. – China is poised to lose its place as the U.S.’s biggest creditor for the first time since the height of the financial crisis, blunting one of Mitt Romney’s favored attacks in the presidential campaign.

CNBC: It sure does seem like Bill Gross hates bonds - “I think ultimately, over time, that stocks – that high quality stocks, which return 2 to 3 percent, in terms of a dividend yield – are certainly a more attractive alternative relative to a 10-Year Treasury at 1.7 percent,” Gross told CNBC’s “Futures Now.”

ETF Trends: – Investors drop junk and head for quality. – Investors are selling high-yield ETFs after a strong run and moving into investment-grade corporate bond funds to cut risk in their fixed-income portfolios, according to industry flow data.

Barron’s:Future 10% high-grade corporate bond returns ‘mathematically impossible’. – After a three-decade run, investment-grade corporate bonds have basically run out of room to generate any future double-digit returns. Says Merrill Lynch credit strategist Hans Mikkelsen, this year’s 10% return for the high-grade market pretty much represents the last of its breed, it’s “mathematically impossible” to replicate that type of return again he said.

Michael Jones Video: Is the role of fixed income changing?  A look at if low yields mean that fixed income should play a fundamentally different role in a portfolio.

MarketSci Blog: What happens to 10 year treasury prices if interest rates fall to zero?  - the longer it takes to get to 0%, the greater the total return (because investors are enjoying that ever dwindling UST yield over a longer period of time), but the smaller the annualized return (because the immediate benefit of falling yields on prices are also stretched over a longer period of time).

Cate Long:Broke New York municipalities have more choices than bailouts or bankruptcy. – With a number of New York’s biggest cities close to bankruptcy and seeking a bailout. Gov. Cuomo’s administration has held secret meetings with the affected cities to try and avoid insolvency. But any future aid to the ailing cities is likely to be linked to “workout plans’’ that reduce local costs and allow them to become fiscally sustainable.

Learn Bonds:Illinois & Pennsylvania are being dragged down by pension problems. – The major rating agencies revised their views of the General Obligation debt of Pennsylvania and Illinois this year. It should be noted that both states still enjoy high investment grade credit ratings, and based on their ratings, should have a very low probability of default. However, there is a major problem which both states are wrestling that will only become larger with time.

ETF Trends:Options traders bet against treasury ETF. – 20+ Year Treasury bonds have been quiet for weeks now, but it appears that bearish speculators are again resurfacing here and playing lower bond prices (and thus higher yields).

Barrons:Top 5 rich-yielding closed end funds that trade at a discount. – With sixty-six percent of taxable bond funds and 73% of municipal-bond funds trading above their net asset value, versus about 30% a year ago. Here’s five closed end funds that actually trade at a discount.

Bond Buyer: Municipal Advisor definition coming early next year. – The Securities and Exchange Commission hopes to finalize its definition of municipal advisor early next year, according to the new director of the SEC’s municipal securities office.

Derek Chipman:An insight on high corporate bond yields. – Given current market conditions and uncertainty in regards to growth, high yield fixed income securities that are issued by corporations with low default risk are increasingly becoming more attractive. Here are several issues affecting current financial markets that should encourage investors to take advantage of these income generating financial instruments

AAM:Outlook for the muni market Sept-Dec. – The September through December period usually sees a healthy increase in new municipal (muni) bond issuance and September of this year confirmed the beginning of that pattern. Given this seasonal increase in supply, it is not unusual, in any given year, to expect some backup in municipal bond yields throughout the fall period.

Financial Lexicon:A high-yield bond ETF that deserves to be on investors’ radar screens. – This high-yield bond ETF is actively managed and has two goals. The primary objective of the fund is to generate high current income, and the secondary goal is to capture capital appreciation.

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