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Research Puzzle Pix: – The high yield bond market is running out of a “margin for error.” – Today we have a situation where investors have flocked in [to junk], even as the valuation picture has worsened as the yield cushion against inevitable problems has been depleted. Nothing will necessarily happen tomorrow or the next day, but there’s no margin for error if something untoward does occur.
CNN Money: – 3 bond bubble theories that don’t hold up. – Top strategist at Blackrock says the economy is stronger than it looks, which will lead to rising interest rates and pain for debt investors. But the evidence otherwise is too strong.
PIMCO: – When will the Fed taper bond buying. – Investors need be alert for signs of progress in the many employment indicators the Fed is watching, and listen closely to what the Fed is saying to know when bond buying will be tapered.
Learn Bonds: – The Great Rotation: What it actually is and how it matters to you. – A lot was said recently regarding the Great Rotation. Unfortunately, much of what was said was based on misunderstandings of what the Great Rotation actually is or can possibly be. The purpose of this article is to clarify what the Great Rotation is and can possibly be and how it matters to investors.
Reuters: – Obama proposes municipal bond tax exemption cap, again. – U.S. President Barack Obama in his budget on Wednesday proposed capping the value of the tax exemption for interest paid by municipal bonds, suggesting once again a way to raise revenues that has rattled the $3.7 trillion municipal bond market for more than a year.
MarketWatch: – Bonds vs. stocks: Only one can be right. – As everyone knows, the bond market and the stock market tend to move inversely to each other. As stocks rise, bond prices fall and bond yields rise. As stock-market prices fall, bond-market prices rise and bond-market yields fall. However, in today’s central-bank influenced, Wizard of Oz economy, interesting divergences are now taking place between the bond market and the stock market. The divergence between bonds and stocks is clearly visible in this chart, as the bond market screams that “risk on” assets are simply too risky.
Bloomberg: – California sells $2 billion in debt as taxes roll in. – California, the most indebted US state, plans to sell $2 billion in tax-exempt general-obligation bonds starting today as income taxes, which account for 63 percent of revenue, outpace projections.
Reuters: – Fed’s Lockhart says “premature” to discuss stimulus pullback. – It is too soon for the Federal Reserve to begin considering a tapering or halt of its bond-buying stimulus program, Atlanta Fed President Dennis Lockhart said on Wednesday.
Opposing Views: – What is the penalty for cashing in a municipal bond? – You cannot go down to the state or local government office that issued the municipal bond you own and cash it in. The issuing authority will not pay off that bond until it reaches the listed maturity date. However, muni bonds are marketable securities and your broker will be able to find a buyer for your bond. You may even end up making some money rather than paying a penalty.
Nat Stewart: – The stock and bond relationship. – One of the most useful concepts when constructing trading strategies is the idea that key markets are related and interconnected. This concept is particularly applicable when creating strategies to trade stock index ETFs such as the SPDR S&P500 Index Trust.
John Rothe: – Time to flee equities for bonds…and Japan? – Last week’s string of bad economic data may finally be the tipping point we have been waiting for. For the past few weeks, I have become more and more bearish on the U.S. economy and stock market. Payroll tax hikes, sequestration, and slowing global growth mixed with a euphoria for a rising stock market have pushed the markets into a high-risk environment.
WSJ: – The pension rate-of-return fantasy. – Counting on 7.5% when Treasury bonds are paying 1.74%? That’s going to cost taxpayers billions.
ETF Trends: – PIMCO short-duration, high-yield ETF rakes in cash on rate fears. – PIMCO 0-5 Year High Yield Corporate Bond Index (NYSEArca: HYS) has seen cash fly in the door the past few months as investors hunt for junk debt ETFs that provide some protection from rising interest rates.
Barron’s: – Junk bonds ‘hitting a brick wall’ but still protected from rate risk. – Bank of America Merrill Lynch credit strategists Oleg Melentyev and Neha Khoda compare the current state of the junk-bond market with a marathon runner “hitting the proverbial wall” around mile 20. Junk bonds came racing out of the gate in January, slowed, and have since settled into either a groove or a rut.
Barron’s: – New futures-based indices let investors bet on corporate bonds. – For investors looking to bet on the direction of corporate bond markets, S&P Dow Jones Indices just announced the launch of three new credit spread indices based upon the S&P 500. S&P says it licensed electronic exchange trueEX, LLC to create futures contracts based upon the indices, and those “will be the first to offer exposure to corporate credit spreads” in futures form.
FT: – Junk bonds benefit from lack of options. – A dearth of attractive investment options has pushed global investors back into the US junk market, sending yields lower and enabling borrowers with weak credit histories to raise funds at the lowest rates on record.
CNBC: – How can stocks, bonds rally together? – Market observers have undoubtedly noticed something a bit unusual these days: Both stocks and bonds have rallied together. So what gives?
GROSS: Fed Minutes express increasing caution on length of QE. Puts focus on an extended policy rate. Curve steepener. Buy 5-10 yr.
— PIMCO (@PIMCO) April 10, 2013
GROSS: Fed releases separate E-mail to congressional staffers and LOBBYISTS? This bothers me.
— PIMCO (@PIMCO) April 10, 2013
https://twitter.com/Anthony_Valeri/status/322005116980969472
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