To get the Best of the Bond Market delivered to your email daily click here.
Investors are voting with their feet, by refusing to buy some speculative-grade debt, deemed too hot by some commentators, including DoubleLine CEO, Jeff Gundlach.
Investors have also pulled cash from leveraged-loan funds in the past two weeks, bringing to an end a record 95 straight weeks of inflows.
To see a list of high yielding CDs go here.
Junk bond mutual funds suffered their first outflow in the week ended April 16, according to Bank of America Corp. data. Investors pulled $320 million, and withdrew another $160 million the following week.
The latest victim of the change in sentiment is Rocket Software who were forced to postpone their $725 million deal this week, after Moody’s Investors Service revised the Waltham, Massachusetts-based company’s outlook to “negative” because of the “large increase” in debt resulting from the proposed payout.
Rocket’s deal is the third to be withdrawn in the last month, with cable TV provider WideOpenWest Finance LLC canceling $1.97 billion in loans and Dutch LLC, which does business as women’s apparel company Joie, scrapping a $200 million debt offering.
Rocket Software and Englewood, Colorado-based WideOpenWest are rated B2 by Moody’s and B by S&P, each five levels below investment-grade. High-yield, or junk, debt is rated below Baa3 by Moody’s and less than BBB- by S&P.
“The balance of power, for the moment, has a little bit shifted to the buy side,” Jonathan Insull, a money manager at Crescent Capital Group LP in New York, told Bloomberg in a telephone interview yesterday. “The market’s been taking a breather and people are using the opportunity to push back.”
The news spells trouble for issuers who are seeing borrowing costs increase. New leveraged loans sold to institutional investors, such as mutual funds, paid an average coupon of 3.94 percentage points more than benchmark rates as of April 24, the highest since July and up from 3.71 percentage points in February, according to Standard & Poor’s Capital IQ Leveraged Commentary & Data.
Todays Other Top Stories
Businessweek: – Muni bonds shower investors with biggest April gains since 2011. – The $3.7 trillion municipal market is set for its best April gain in three years, extending a 2014 rally that has outpaced stocks, Treasuries and corporate debt.
MuniNetGuide: – Five handy online calculators for municipal research. – The online world is not flat, which continues to increase the power of the Internet. Certainly, we can access vast amounts of information online. We can also, in a growing number of examples,interact with that information, through tools or calculators that allow us to change variables and see the impact of those changes.
CNBC: – Want to beat the market? Buy muni bonds? – Municipal bonds, thought to be investments where investors accept rock-bottom returns in exchange for low risk, are actually beating stocks this year.
Bloomberg: – Burlington avoids junk by saving vermont internet venture. – Burlington, Vermont, which was on the brink of a junk credit rating after diverting cash to a high-speed Internet project, has stepped away from the edge.
Market Realist: – Must-know drivers that impact Treasury yields and ETFs like TLT. – Yield is the annualized return on investing in a bond, considering both coupon payments and redemption value (normally the face value). Like all other returns, bond yields are quoted in percentages.
LearnBonds: – Third round of quantitative easing – $10 billion. – The Federal Reserve announced on Wednesday, April 30, 2014, that it was going to reduce the amount of securities it purchased every month as a part of its third round of Quantitative Easing by another $10 billion. This means that over the next month the Fed will only buy $45 billion in securities.
Market Realist: – Why China’s buying US debt offsets the Fed taper, helping Google. – China is once again snapping up strong levels of U.S. agency debt at a greater rate than Treasury debt, at roughly $6 and $5 billion, respectively, while U.S. corporate debt acquisition remains low, at closer to $1 billion per month.
FT Adviser: – Treasury bonds latest weapon for multi-asset funds. – U.S. Treasury bonds are proving to be a “useful and cost-effective” hedge against fraught geopolitical conditions and deflationary risks for multi-asset funds, Iain Stewart has argued.
Investors.com: – Benchmark yield declines after Fed sticks with plan. – Treasuries rose for a second day as the Federal Reserve reiterated that it’s likely to keep the benchmark interest rate close to zero for a “considerable time” after bond purchases end.
FT: – Apple bonds rise on first trading day. – Apple bonds rose in their first full day of trading in secondary markets, rewarding investors who bought $12bn worth of the securities at attractive prices in the largest corporate debt sale so far this year.
WSJ: – Individual investors look to the ‘frontier’ in quest for returns. – Wanted: small investors willing to commit part of their savings to less-developed countries with fast-growing economies and the potential for big returns.
JP Morgan: – Emerging market debt strategy. – Emerging market (EM) fixed income ended the quarter on a strong note, with positive performance across all three subsectors. We expect the challenging growth environment in emerging markets to persist in the second quarter, with political and policy headwinds remaining on the horizon.
FT: – Stressed investors seek periphery debt havens. – Have crisis-hit eurozone economies become havens for stressed investors? Even a few months ago, the idea would have seemed ridiculous – to many it probably still does. Yet a rally since late last year in debt markets of countries such as Spain, Italy and Portugal has prompted suspicions that the region is benefiting from a global shift in sentiment.
Reuters: – Amid Russia tensions, emerging bonds see April issuance surge. – Hard currency bond sales by emerging market borrowers surged in April, with companies chalking up the highest monthly total since the Federal Reserve’s first hint at stimulus withdrawal last May spooked investors.
HighTower Advisors: – Objects in the mirror are closer are closer than they appear. – The key to navigating the next chapter in bond investing is to know the number – “duration”. Duration is a statistical calculation that indicates the interest rate risk of a bond or bond portfolio.
Dave Dierking: – 3 ETFs to replace PIMCO total return in your portfolio. – PIMCO Total Return managed by bond king Bill Gross has seen almost $50 billion leave his fund as a result of recent poor performance.
Investorplace: – Should you buy these 2 high-yield REITs? – Two REITs came onto my radar last year — Campus Crest Communities (CCG) and Education Realty Trust (EDR). I’m always on the lookout for companies that operate in niche spaces because said spaces tend to be highly fragmented, and clear leaders often emerge. Choosing the winner can lead to enormous returns.
Think Advisor: – Preparing a portfolio for a rising-rate environment. – Greg Hopper and Keith Bachmann discuss how investors should prepare a fixed income portfolio for a rising rate environment and characterizing the short to mid-term outlook on fixed income.
WSJ: – Alternative mutual funds draw concerns. – Alternative mutual funds are growing in popularity, but some financial advisers say they are not yet sold on these complex and evolving products.
Reuters: – PIMCO Total Return rises 0.74 pct in april. – The Pimco Total Return Fund, the world’s largest bond fund run by veteran money manager Bill Gross, rose 0.74 percent in April, trailing 68 percent of its peers, according to preliminary data from Morningstar.
Moody’s downgrades Kansas for weak economy, using non-recurring resources to balance budget. Kansas used to be Meredith Whitney’s darling.
— munilass (@munilass) May 1, 2014
*NEW JERSEY GO DEBT CUT TO A+ FROM AA- BY FITCH. OUTLOOK REMAINS NEGATIVE.
— Brian Chappatta (@BChappatta) May 1, 2014