The Buffett Muni Story….PIMCO Slashes High Yield Exposure…and more!


Best of the Bond Market for August 21st, 2012

WSJ: The Warren Buffett story that got everyone talking today.– Warren Buffet’s Berkshire Hathaway cuts its exposure to muni bonds in half. The move comes after 3 Californian cities filled for chapter 9 bankruptcy protection over the last few weeks.

Learn Bonds: Mainstream media off base on Buffett muni story - Similar to the mainstream media’s reporting on the NY Fed default study, publications are jumping the gun on these stories, without researching all the facts.

WSJ: PIMCO slashing junk bond exposure  - Mark Kiesel, global head of corporate bond portfolio management at Pimco, said in a phone interview Tuesday that he started cutting exposure to the so-called junk debt market several weeks ago.

Bloomberg: There’s a good reason muni’s aren’t selling off on recent negative headlinesState tax collections are rising, suggesting a return to fiscal health and an increased ability to service debt. Tax-exempt municipal securities are still cheap, with a 10-year yield at 102.82 percent of comparable Treasury debt, well above the 93.14 percent average over the past decade.

Zero Hedge: Citi’s Economic surprise index is highly correlated to the 10 year treasury – see chart.

BusinessWeek:Catastrophe bonds outperform corporate bonds in a weak market. – Catastrophe bonds are up 1% this month compared to a 0.9% decline in corporate debt bonds. This is a sign investors are looking away from traditional markets in order to increase yields. But beware, catastrophes can happen at any time, just ask the people of Fukushima.

ETF Trends: - TIPS ETFs hurt by rising interest rates. – TIPS ETFs might sound like a great idea on the surface, but they’re a much different animal than holding the bonds themselves, ETFs that invest in TIPS with longer durations have risks that might not be apparent because they’re sensitive to interest rate changes.

Bloomberg:Are social impact bonds the answer to inmate recidivism? – New York and Massachusetts are the first U.S. states to embrace new social impact bonds. These bonds provide funding for crime prevention initiatives and other socioeconomic projects that have met predefined success targets. George Overholser, CEO of Third Sector Capital Partners said “This makes it possible to invest more in prevention, which are often the first programs that get cut in fiscal stress”.

BlackRock: - Municipal bond supply not enough to satisfy demand. – The municipal bond market posted strong performance in July, both on an absolute basis and relative to the more volatile US Treasury market.

RitHoltz:Pension plans have been moving away from stocks into bonds, but is the move permanent? – Bonds now make up 42% of corporate pension plans a 10 point increase over the previous year. But will this trend continue or will they revert back to stocks when the market improves?

BuisinessWeek: - General Electric offer $563 million of asset backed debt. – GE plans to sell $563 million of bonds backed by credit-card payments as sales of consumer credit debt rise.

BondSquawk: - U.S. regulators are squeezing middle market companies out of the bond market – With the introduction of the Volcker rule U.S. corporate bond liquidity has fallen to its lowest level in 10 years. With limited inventories dealers are increasingly focusing only on the largest bond issues, like those traded by large corporate bond ETFs.

AdvPerspectives:Bonds vs. Stocks, which will perform better over the next 10 years? –Traditionally stocks have outperformed bonds over the long term, but with the current turmoil in the financial markets does the outlook for stocks remain positive and will they continue to outperform bonds?


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