Best of the Bond Market for June 11th, 2012
Bond Buyer: Bing: Detroit Will Miss Friday Payment if Suit Not Dropped – Detroit Mayor Dave Bing warned this morning that the city will miss a $34.2 million bond payment due on Friday unless the city’s top lawyer drops a lawsuit challenging the two-month-old consent agreement between the city and the state.
MuniLand: Detroit’s Fiscal Situation Gets Hotter – It’s a sad state of affairs for Detroit. The city is almost out of funds; its general obligation debt is rated junk, making any further borrowing difficult; various political factions in the city and state are fighting each other; the governor and state treasurer are trying to keep Detroit on as short a leash as possible; and, as I wrote previously, many of the termination triggers on the city’s interest-rate swaps are going off, requiring even more upfront cash or debt to cover these payments.
Bond Buyer: Big Muni Week Looming with $12 Billion in New Issues - unicipal bond issuers have assembled a whale of a calendar for this week, with just over $12 billion slated to come to market, nearly double last week’s $6.35 billion total. The Michigan Finance Authority leads the pack with about $3 billion of long-term bonds. The Dormitory Authority of the State of New York follows with an anticipated $2.0 billion of bonds.
Bond Buyer: Traders Focused on Primary As Larger Deals Steal Show – Munis were steady Monday afternoon, according to the Municipal Market Data scale. On Friday, the 10-year yield closed flat at 1.90% while the 30-year yield fell one basis point to 3.18%. The two-year was steady at 0.32% for the sixth consecutive trading session. Treasuries were stronger than Friday’s levels. The benchmark 10-year yield dropped three basis points to 1.61% while the 30-year yield fell four basis points to 2.73%. The two-year was steady at 0.28%.
Marketwatch: 10-year yields could fall to 1.3% – Treasury 10-year yields could fall to about 1.30% from 1.60% if the European crisis continues to send investors seeking shelter in U.S. debt, and domestic inflation falls enough to prod the Federal Reserve back to action, according to analysts at Bank of America Merrill Lynch.
Bloomberg: Bond Bubble Dismissed as Low Yields Echo PIMCO’s New Normal - “You’re not talking about a bubble because a bubble is about greed,” Jeffrey Rosenberg, chief investment strategist for fixed income at BlackRock Inc. in New York, which has $3.68 trillion under management, said in a June 6 telephone interview. “That’s not a reflection of ‘I expect prices to go higher and I have to jump in,’ that’s a reflection of ‘I want to preserve my principal.’ Negative yields reflect fear.”
WSJ: Treasury Intends to Continue to Lengthen Average Maturity – The U.S. Treasury intends to continue to gradually extend the average maturity of the securities it issues–a tactic that locks in borrowing costs but potentially dilutes the impact of a Federal Reserve policy intended to boost the economy. The average maturity of outstanding Treasuries reached 63.9 months at the end of May–the highest level in a decade.
FT: Bond Buyers Should be Mindful of History – does this flight to so-called havens really provide investors with the protection they desire? Or, are bond buyers making a huge mistake that is likely to guarantee them a period of negative real (after inflation) returns? The answer is almost certainly the latter. Bonds today in countries such as Japan, Germany, and the US are more expensive than at any time in history. Bond investors face virtually sure losses and equities are as attractive as they have been in a generation.
Blackrock: Investing for a new World Reconstruct Your Fixed Income Portfolio – Tips from CIO Jeff Rosenberg.
Businessweek: Puerto Rico Borrowing Costs Rise on Rating Concern: Muni Credit – The Puerto Rico Public Buildings Authority last week sold lease-backed bonds the day after Standard & Poor’s said it may cut the island’s general-obligation rating, now two steps above junk. The agency sold 30-year tax-exempts rated BBB, the same as the commonwealth’s, to yield 5.38 percent. The spread above AAA was 2.17 percentage points, rising from 2.1 points in August and 1.5 points in a 2009 issue, data compiled by Bloomberg show.
Investorplace: Muni-Bond Myth: California Is Greece – Bottom line: It’s easy to compare California to Greece, or pretty much any troubled local or state government to one of the wobbly eurozone nations. But it’s not really all that helpful. With state revenue collections at their highest level since 2008, muni-bond fundamentals look promising, BlackRock says. Income-thirsty investors keep lapping up their yields (and tax benefits), meaning demand for the asset class remains robust and should continue to outstrip supply.
ETF Trends: High Yield Bond ETFs vs. Treasuries - Investors are face growing interest-rate risk as Treasury bond yields hover near all-time lows. However, investors may find more lucrative and even safe options in high-yield corporate bond exchange traded funds.
Learn Bonds: Bond Funds vs. Individual Bonds – Advantages: Diversification, Better pricing, professional management, convenience, monthly dividends. Disadvantages: Interest Rate Risk, Unpredictable Income Stream, Tax Bill Uncertainty.