A Record Treasury Auction, How Low Can Yields Go?, Detroit and More!

Best of the Bond Market for June 13th, 2012

NASDAQ: US Sells 10 Year Treasuries at Record Low Yield - The U.S. government attracted strong demand at its 10-year debt offering Wednesday, despite paying a new record-low auction yield of 1.622%. That rate is by far the lowest yield ever paid at an auction of this maturity, and was actually less that the going market rate at the time of the sale. The previous record was set at last month’s auction, at a 1.855% yield.

CFA Institute: Negative Nominal Debt Yields: How Low Can Yields Go? - Yet when we look at the spreadsheet, we can see that a compelling argument, not unique to the fixed-income world (see below), can be made for purchasing negative nominal yield securities. This is due to the possibility of interest rates going even lower/capital gains rising even higher. Obviously, this is a greater fool/musical chairs game.

Chicago Tribune: Judge dismisses lawsuit against Detroit fiscal pact - A Michigan judge on Wednesday dismissed a lawsuit that challenged Detroit’s financial stability agreement and which had threatened to leave the city without cash to make a critical debt payment due on Friday.

PennLive: Harrisburg stares down $12.6 million budget deficit – Harrisburg is staring down a year-end budget deficit of $12.6 million, said state Department of Community and Economic Development official Fred Reddig. That figure includes a general obligation debt payment the city missed in March and another it is supposed to pay in a few months.

BlackRock – Overall housing activity remains weak, but investors see opportunity in mortgages - The housing market overall continues to remain challenged by various factors. A large overhang of “shadow” inventory remains and the mix of home sales to date has been heavily skewed toward distressed purchases. For fixed income investors however, mortgages represent an opportunity.

The Big Picture: Are U.S. Debt Levels Now Manageable? – since the recession ended in June 2009, total U.S. debt has risen at the slowest pace since they began keeping records in the early 1950s. While Washington has taken on a lot of debt since then, the private sector has paid off, written off or dumped on the government almost as much.

Random Roger: Bond Market Twighlight Zone – My take has been that prices are very high but could stay high for quite a while. I believe the fundamentals call for much higher rates which I would have thought would have started by now but obviously that has been incorrect. The Fed is planning to keep rates low for awhile still and no one should be surprised if low rate policies continue to be extended.

Bond Buyer: Market Update: Supply Meets Demand as Buyers Eat Up Munis – Munis were mixed Wednesday as the yield curve steepened, according to the Municipal Market Data scale. Yields inside three years were steady while the four- and five-year yield rose one basis point. The six- and seven-year yields were steady while yields outside eight years fell as much as two basis points.  Treasuries were stronger Wednesday after a weaker session Tuesday. The benchmark 10-year yield dropped five basis points to 1.62% while the 30-year yield fell three basis points to 2.74%. The two-year yield fell one basis point to 0.30%.

Forbes: Foreign Fears and Domestic MunisConcern over the financial health of Europe has helped to open up an unusually wide yield differential between municipal bonds and Treasuries.  Investors seeking to squeeze out some additional yield on their fixed- income investments might consider munis, which even on a before-tax basis are offering relatively attractive yields.

Fox Business: Bond Issuance Continues as 6 Companies Sell $2.5 Billion – Six high-grade companies are issuing more than $2.5 billion combined Tuesday, following a $6.95 billion tally on Monday. The slew of deals to start the week indicate companies are confident they can find investors and borrow at low interest rates, yet they also suggest some nervousness about selling bonds later this month, according to market participants.

Money Management: Emerging Market Debt – an evolving opportunity -  emerging market sovereign issuers have seen a steady improvement in their creditworthiness in recent years due to large-scale structural reforms, including sound fiscal and debt management. Their credit profiles compare favourably to sovereign borrowers in the developed world – many of whom are likely to feel the effects of the credit crisis for years to come.

Barrons: High Grade Corporate Bonds Weaken Amid Heavy Issuance – some highly-rated corporate bond issuers are hoping they haven’t jumped the gun this week, as a heavy early-week supply of new bond offerings is coming amid a weakening of the market.

WSJ: Bill Gross Capitalized on Big Treasury Rally Last Month - While the positions may get hurt if no additional stimulus is unleashed from the Fed, or if the euro-zone debt woes improve, Gross has been doing well so far in 2012. The fund has returned 5.37% this year through Monday, beating the 2.29% gain for the Barclays Aggregate Bond index.

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