Former PIMCO Employee Beats Gross at His Own Game

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While Mohamed El-Erian’s departure from PIMCO garnered most of the headlines, he is not the only high profile employee to depart the bond giant in the last twelve months. Marc Seidner, an ally of El-Erian quit the bond giant 48hrs before El-Erian’s departure was announced.

Seidner, who was seen as a close confident of El-Erian having previously worked together at the Harvard University endowment fund, reportedly turned down an offer to become one of Gross’s top lieutenants.

  To see a list of high yielding CDs go here.  

Seidner opted instead to leave the swaying palm trees of Newport Beach, heading back to the East Coast to become head of fixed income at the Boston-based money management firm run by contrarian investor Jeremy Grantham.

Here, Seidner is free to make his own investment choices and no longer has to seek approval for his trades from the “Bond King”. Seidner’s first trade was a somewhat counter-intuitive call that bond yields would fall, not rise further as many had predicted.

Seidner sensed that last year’s Treasury market upheaval triggered by speculation about when the Federal Reserve would start reducing its bond-buying stimulus – the so-called “taper tantrum” – had left pockets of value in some longer-dated bonds.

Fast forward six months and Seidner’s bet was on the money. His core U.S. bond fund is outpacing 98 percent of its peers and easily beating Gross’s PIMCO Total Return Fund, the world’s biggest bond portfolio, as the yield on the 10-year Treasury note has fallen roughly 60 basis points this year.

While there is a huge difference in the size of the two funds – it is much easier to maneuver with a smaller fund like Seidner’s – both funds are regarded as directly comparable for bond investors.

 

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Learn Bonds

LearnBonds: – Making tough asset allocation choices in retirement. – While each retired investor’s assets, goals, and risk tolerance will vary, a sound investment course of action to follow is that of diversification. Owning different asset types at different parts of the corporate capital structure enables investors to spread the risks that each investment entails. Though some investors may be predisposed to owning only stocks or only bonds, in reality a mix of both assets is probably the safest course of action.

 

Municipal Bonds

Bond Case Briefs: – S&P widens lead over Moody’s as bond upgrades surge: Muni credit. – Standard & Poor’s is pulling away from Moody’s Investors Service in the business of grading U.S. municipal bonds. Janney Montgomery Scott LLC’s Tom Kozlik says the gains reflect local governments shopping for the best ratings.

WSJ: – Puerto Rico Power Authority faces Thursday deadline to extend credit. – Puerto Rico’s cash-strapped electric power authority faces a key deadline on Thursday to extend lines of credit with banks or face a possible restructuring of about $9 billion in total debt.

 

Bond Market

LPL Financial: – Bond market perspectives. – The strength of European government bonds has supported demand for US Treasuries due to more attractive yield differentials. European influences may continue over the near term, but we expect U.S. bond yields to reconnect to  domestic economic data in coming months.

WSJ: – Bonds, not bailouts, for too big to fail banks. – Too big to fail remains unresolved in the U.S. Last week the Federal Reserve and the Federal Deposit Insurance Corp. said that not one of the nation’s 11 largest banks could fail without threatening the broader financial system. The news came after regulators reviewed the banks’ “living wills,” the emergency plans required under the 2010 Dodd-Frank law.

 

Treasury Bonds

Breitbart: – China appears ready to dump its U.S. Treasury bonds. – The real power to determine U.S. interest rates may be in the hands of China, according to Lombard Street Research. Facing an overvalued currency that is hurting corporate profits and slowing growth, China appears ready to dump its $1.3 trillion in U.S. Treasury bonds to drive U.S. interest rates up and strengthen the dollar.

Reuters: – Bond yields fall on weak data before 10-year supply. – U.S. Treasury debt yields fell on Wednesday as disappointing data on U.S. retail sales revived bets the Federal Reserve might leave policy rates near zero for a longer period in a bid to keep the economic recovery on track.

 

Investment Grade

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Emerging Markets

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Catastrophe Bonds

The World Bank: – Disaster Risk: Using capital markets to protect against the cost of catastrophes. – the World Bank Treasury has been helping our clients protect their public finances in the event of a natural disaster. The most recent innovation is our new Capital-at-Risk Notes program, which allows our clients to access the capital markets through the World Bank to hedge their natural disaster risk.

 

Investment Strategy

Donald van Deventer: – Kinder Morgan energy partners leads the 20 best value bond trades, August 11, 2014. – We show that investors have not demanded more spread as default risk goes up, which is why ranking “best value” by the spread to default ratio is important.

 

Bond Funds

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