City of Compton on Muni Market Death Watch….QE3 Cometh…and More!

Best of the Bond Market for July 18th, 2012

Reuters: City of Compton may declare bankruptcy by September -officials - The City of Compton, a city of 93,000 people located on the outskirts of Los Angeles, must decide by Sept. 1 whether to seek bankruptcy, according to its two most senior financial officials.

Calculated Risk: There is a strong possibility that the Fed will launch QE3 on August 1st.  - By my count, if Bernanke decides that QE3 is appropriate, he will have 10 or 11 votes on August 1st. Maybe the FOMC will wait for more data, but I think QE3 is likely very soon.

Muni Net Guide: Demystifying the High Yield Municipal Bond Market – In the book, and in the interview that follows, Mr. Nguyen explains how high yield municipal bonds can be an attractive asset class based on the potential for high returns on investment.  At the same time, investment in high yield bonds requires a lot of discipline, as well as an understanding of their inherent risks.

Bloomberg: Bernanke says inflation to remain near Fed’s 2% target – Fed officials project that inflation will be 1.2 percent to 1.7 percent this year, compared with the Federal Open Market Committee’s 2 percent goal. Crude oil futures have declined 9.9 percent this year after posting a gain of as much as 11 percent in February. Oil for August delivery rose 0.2 percent to $89.30 a barrel as of 9:30 a.m. in New York.

Learn Bonds: 4 strategies for trading interest rate moves -  In this environment what maturity should date should you pick or how should you position your investments?

Bond Squawk: Bond fund managers pare back bullish bets on treasuries. – After seeing the 10-Year U.S. Treasury gain where yields fell and approach their historical lows, Bond Fund Managers switched gears to a more Neutral Stance according to JP Morgan’s most recent Treasury Client Survey.

AllianceBernstein: Emerging market credit has come of age – The most common concerns investors cite are risk, volatility, limited market size and lack of diversification. We think the market has now evolved to the point where all four of these concerns have been addressed.

Reuters: Volcker, Ravitch warn U.S. state budgets under long-term threat – The State Budget Crisis Task Force, headed by Volcker and former New York Lieutenant Governor Richard Ravitch, studied six key U.S. states and found that rising healthcare and pension costs, along with tax volatility and federal budget cuts, threaten state budget stability.

WSJ: BlackRock tests new bond platform without telling wall st. securities dealers that dominate the business. – The New York money manager’s BlackRock Solutions arm last Thursday held a live trading session with several members of its Aladdin Trading Network, the name of its new electronic trading hub. The platform is designed to let BlackRock and other large investors—from sovereign wealth funds to mutual-fund companies—trade corporate bonds directly with each other, bypassing Wall Street and lowering trading costs.

iStockAnalyst: Smaller muni bond funds that do their research – T. Rowe Price Tax-Free Short-Intermediate (PRFSX), Northern Tax-Exempt (NOTEX), Wells Fargo Advantage Intermediate Tax/AMT-Free (SIMBX).

Investment News: US bond investors still plowing money into bond funds. – U.S. stock funds experienced outflows of $8.5 billion, versus $10.8 billion in inflows to taxable-bond funds and $3.8 billion to municipal bond funds.

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