To get the Best of the Bond Market delivered to your email daily click here.
The ongoing upheaval in Ukraine, highlights the risks of Emerging Market bonds and proves that this is NOT a market for novice investors.
While hopes for a deal with the International Monetary Fund boosted Ukrainian dollar bonds by 5-9 cents across all maturities on Monday, some big-name investors are worried about how fast Kiev can secure a rescue and whether an IMF bailout may reschedule its debts.
Bondholders’ worries are by no means over. “Ukraine is still a risky call. It is not out of woods as there is a lot of short-term debt coming due,” said Sergei Strigo, head of emerging debt at Amundi, which has a total of $1 trillion under management. “If you look at the bond curve you can see it still indicates potential for (debt) restructuring.”
Ukraine, along with Venezuela, are this year’s worst bond performers, recording losses of 13 percent by end of last week on the JPMorgan index. And they are far from unique, Turkey and Argentina are also struggling to maintain their exchange rates against the dollar as both countries have been hit by government crises.
Add to that concerns about an economic slowdown in China and you have an EM crisis which has spread across all continents – China in Asia, Egypt and Turkey in the Middle East, Ukraine in Eastern Europe and Argentina in South America.
So if you’re desperate to avoid a stagnating U.S. economy, you would be wise to avoid this particular poisoned chalice and place your money on a resurgent Europe instead, especially the UK and Germany. Recent investor surveys, most notably the Bank of America Merrill Lynch Fund Manager Survey, show that investors expect stable growth in both these areas, without the inherent risk that comes from some EM economies.
Todays Other Top Stories
Bankrate: – Why buy municipal bonds through a 401(k)? – A reader asks. Can I buy municipal bonds through my 401(k)? As I look to diversify my investments, I think this is something that could be worth considering. What can you tell me about the possible pluses and minuses?
Reuters: – Sales drought to continue in U.S. municipal bond market next week. – Next week will feature three large and atypical sales of U.S. municipal bonds, as a drought of primary issuance stretches on with only $2.87 billion in new debt coming to market, according to Thomson Reuters estimates.
ETF Trends: – Puerto Rico news – All day, all the time. – As has been thoroughly reported, a good number of municipal bond mutual funds and ETFs across the country have (or had) exposure to many of the Commonwealth’s issues of triple tax-exempt bonds (federal, state, and local levels of taxation), going into this current crisis. However, below investment-grade ratings do not mean imminent default. We should consider these factors as important markers in this evolving narrative.
Motley Fool: – 3 Ways to stay tax-Smart in 2014. – If you’re like most people, you probably wait until this time of year to think about taxes. But by implementing tax-smart investing strategies year-round, you can potentially save a bundle of money. Consider these three strategies.
Investment News: – New Detroit bankruptcy plan in the hands of creditors. – Disagreement from both bond insurers and unions signals a more contentious negotiation phase.
CNBC: – Dozens of states, cities coping with bad bond bets. – When it comes to interest rate swaps, Detroit is not alone. More than five years after the 2008 financial crisis upended the world of credit and debt, dozens of states, counties, cities, school districts and other public entities tapping the $4 trillion muni bond market are still feeling the hangover from these risky bets.
Bloomberg: – Puerto Rico going from bad to worse lowers CDS risk. – The cost to protect against U.S. municipal defaults is the lowest in five months as investors anticipate a planned $2.86 billion Puerto Rico borrowing will ease the island’s cash needs.
Bloomberg: – Treasury yield curve narrows as U.S. economic growth falters. – The difference between yields on two- and 10-year Treasuries narrowed for the first time in three weeks as investors questioned the pace of the economic expansion after reports showed harsh weather weighed on U.S. growth.
English People: – Don’t hype China’s U.S. T-bond trim: economists. – Senior economists have argued against reading too much into China reducing its holdings of U.S. treasury bonds in December with its biggest monthly cut in two years.
Bloomberg: – Treasury yield in tightest range in 4 months on economic concern. – Treasury 10-year note yields traded in the narrowest range in four months as investors weigh whether weaker-than-forecast data suggest an economic slowdown is weather-related or reflects a fundamental decline.
Bloomberg: – U.S. Corporate credit swaps index rises first time in four weeks. – A gauge of U.S. corporate credit risk rose for the first week in four on signs the Federal Reserve is unlikely to slow the pace of stimulus cuts.
Income Investing: – Corporate bond prices benefit as new issuance plunges. – New corporate bonds have been in short supply so far this year, even as rates retreated from where they began the year, and that’s helping boost the prices of existing corporate bonds.
Morningstar: – Corporate credit charting its own course. – At the start of the year, equity investors were fretting about possible emerging-market contagion, while bond investors were fretting about fallout from Fed tapering. The corporate credit market seemed to be charting its own course.
The Street: – Downgrade alone won’t kill an emerging market. – While few investors are rushing to pour money into Ukraine bonds or shares, a major downgrade may not be the deciding criterion.
MoneyNews: – Explosive growth in emerging market bonds may end in crisis. – Emerging market bonds have mushroomed in size over the past few years, as bonds have been used to finance the fledgling economies’ heady growth.
FT: – EM issuers undeterred by political turmoil. – The US debt capital markets have remained wide open to developing nations even as violent anti-government protests raged in Ukraine, Thailand and Venezuela and emerging market currencies across the globe plummeted.
PIMCO: – High yield spectrum strategy. – High yield bonds are corporate securities with credit ratings below investment grade. To attract investors, non–investment grade companies usually pay higher interest rates than issuers deemed to be more creditworthy, so their bonds are called “high yield.” High yield bonds can be used to diversify an investment portfolio because their performance has a low correlation with most asset classes, especially investment grade bonds such as Treasuries and high grade corporate debt.
USA Today: – What’s safer: Individual bonds or funds? – Contrary to popular belief, both bond funds and laddered individual bond portfolios have identical risk.
Trustnet: – Why bonds and gold should be back on your radar in 2014. – The manager of the £8.6bn Newton Real Return fund says that high equity prices mean that traditional safe haven assets will reassert their true value this year.
LearnBonds: – Trading bonds at Vanguard – An in-depth look. – Things are changing in favor of the everyday investor. Some retail brokerage firms offer bond platforms that provide an adequate selection of individual bonds at extremely low commissions and very low minimum investments. Two such firms are Vanguard and Fidelity. In this article, I would like to focus on Vanguard’s bond trading platform.
Investment Europe: – Three bond scenarios could play out in 2014, says AXA IM’s Nick Hayes. – Nick Hayes, manager of the AXA WF Global Strategic Bonds fund at AXA Investment Managers, has outlined three scenarios that could affect the fixed income market through 2014.
Market Realist: – Head-to-head: A comparative analysis of bond ETFs. – We measure the riskiness of holding the ETF through a measure of volatility called standard deviation. The standard deviation shows how much variation or dispersion from the average exists. Given below is a comparison of volatility measured in terms of SD of TLT with SPY.
Gross: PIMCO has won Lipper’s Large Stock Fund Group Award 4 times in a row! Going for more. We’re not just a great bond firm.
— PIMCO (@PIMCO) February 24, 2014
— Kate Smith (@laKateKate) February 24, 2014
If our projections for Feb #muni issuance are correct ($15B) then 2014 supply by month-end will be 1/3 of what it was in 2013
— Muni Market Advisors (@Muni_Mkt_Advis) February 24, 2014
“Bond Squad is my favorite bond investing newsletter. It combines common sense with deep market knowledge.”
- Marc Prosser, Publisher of Learn Bonds
Bond Squad is more than just an investment newsletter! Paying subscribers can call-up bond market veteran trader and portfolio manager, Tom Byrne, for market advice and have him review their portfolio free of charge.
Get a free two-week, no commitment trial of Bond Squad by emailing Tom at firstname.lastname@example.org
Or learn more about Bond Squad’s clearly written, expert analysis, click here