Best of the Bond Market for June 20th, 2012
NY Fed: Statement Regarding Continuation of the Maturity Extension Program – On June 20, 2012, the Federal Open Market Committee (FOMC) directed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York to continue through the end of the year its program to extend the average maturity of the Federal Reserve’s holdings of Treasury securities.
Business Insider: Fed Extends Operation twist - Rather than go on with full on QE3 (more bond buying), the Federal Reserve is extending what’s known as “Operation Twist” which means that the Fed will buy long dated Treasuries and finance that with sales of short-dated government bonds.
WSJ: Parsing the FED – How this statement changed from last – Full statement with changes from previous statement highlighted.
Learn Bonds: Passive vs. Active Bond Funds: Which is Right for You? – Most bond investors will come out ahead by investing in a passively managed fund.
FT: Mohamed El-Erian – The Fed’s Second Best Solution – Wednesday’s decision signals that America is falling further behind its first best policy responses. And while the Fed should be commended for trying to deliver a second best, net benefits will prove even more difficult to secure. In the process, look for greater distortions that will take years to resolve.
BCA Research: Overweight U.S. Corporate Bonds - The path of least resistance for corporate bond spreads is to tighten in the absence of a recession or a sustained and intense flight-to-quality episode.
ETF Trends: A Top Emerging Market Bond ETF - ELD is an ETF that allows investors returns consisting of income and capital appreciation. The fund invests in local debt denominated in the local currencies of various emerging markets, according to WisdomTree. Countries represented include Brazil, Chile, Columbia, Mexico, Poland, South Africa and South Korea to name a few. Currently, ELD yields 5.2%.
MarketWatch: Junk Bond ETFs: An Insider’s View (HYG, JNK) – Despite the new found scrutiny and a market environment that would appear to not favor high-yield bonds, funds such as HYG and JNK have demonstrated their allure to investors. Some say these funds are even changing the high-yield game.
A Dash of Insight: The Quest For Yield Part 7: What About Bonds? - If you own bond funds or bond ETFs you should conduct an immediate review. Taking personal control of your bond allocation requires owning bonds, not bond funds.
Blackrock: Market Not Pricing In Tax Advantages of Munis – The ratio of muni yield to US Treasury yield typically hovers around 100%, meaning the yields are effectively equal. But recent flight-to-quality moves by investors into Treasuries has pushed muni yields to 100%-115% of Treasury yields.
WSJ: Detroit Finds Strong Demand for $667 Million Sewer Deal - Investors piled into a $667 million sewer-bond sale from Detroit on Wednesday, despite well-publicized financial troubles at the city. Detroit lowered yields on 2039 maturities by 10 basis points, indicating strong demand from investors.
YAHOO Finance: Video: Potential Fiscal Cliff Makes Munis Even More Attractive