This Week’s Top Bond Market Stories – August 16th Edition


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LearnBonds

LearnBonds: – Goldman Sachs Stock – Buy and hang on for the ride! – When it comes to investing in Goldman Sachs, it’s all about the timing. If you get in when the stock is overvalued, you might be in for a punch in the face.

LearnBonds: – High yield spreads are on the rise. – On October 4, 2011, spreads in the non-investment grade part of the corporate bond market reached a level of 910 basis points over Treasuries.  If you were an investor on the prowl for so-called “junk bonds” to add to your portfolio, early October 2011 was a fantastic time to buy. Since that time, however, it slowly became more difficult to find enticing opportunities in the world of high yield bonds, as spreads have collapsed, falling all the way to 335 basis points on June 23, 2014.  And then things changed.

LearnBonds: – High yield spreads are on the rise. – On October 4, 2011, spreads in the non-investment grade part of the corporate bond market reached a level of 910 basis points over Treasuries.  If you were an investor on the prowl for so-called “junk bonds” to add to your portfolio, early October 2011 was a fantastic time to buy. Since that time, however, it slowly became more difficult to find enticing opportunities in the world of high yield bonds, as spreads have collapsed, falling all the way to 335 basis points on June 23, 2014.  And then things changed.

LearnBonds: – Making tough asset allocation choices in retirement. – While each retired investor’s assets, goals, and risk tolerance will vary, a sound investment course of action to follow is that of diversification. Owning different asset types at different parts of the corporate capital structure enables investors to spread the risks that each investment entails. Though some investors may be predisposed to owning only stocks or only bonds, in reality a mix of both assets is probably the safest course of action.

LearnBonds: – Making sense of the movement in longer-term interest rates. – What is going on in the bond market? The yields on U.S. Treasury bonds continue to remain at levels below what most investors thought they would see here in 2014. I personally believed that the yield on the 10-year would be up in the 3.00 percent to 3.50 percent range…with the market tending more toward the higher value. So, in terms of the yield, what has happened since the end of last year?

  To see a list of high yielding CDs go here.  

 

Municipal Bonds

CNBC: – SEC files securities fraud charges against state of Kansas over muni bonds and pension liabilities. – Securities regulators have filed fraud charges against the state of Kansas Monday, alleging bond offering documents failed to disclose the risks to investors from the state’s underfunded pension system.

WSJ: – Kansas settles charges it hid a risk to muni bonds. – Kansas has agreed to settle a fraud case in which the Securities and Exchange Commission charged the state misled investors when it failed to disclose that its underfunded pension system posed a risk to the repayment of some municipal bonds.

Bond Case Briefs: – S&P widens lead over Moody’s as bond upgrades surge: Muni credit. – Standard & Poor’s is pulling away from Moody’s Investors Service in the business of grading U.S. municipal bonds. Janney Montgomery Scott LLC’s Tom Kozlik says the gains reflect local governments shopping for the best ratings.

NJ.com: – Casino closings put Atlantic City’s credit rating in peril. – The shuttering next month of Revel, the $2.6 billion hotel and casino that was meant to usher in a new era of opulence in Atlantic City when it opened in 2012, is set to quicken the seaside community’s downward spiral.

Reuters: – U.S. municipal bond trading torpid in second quarter. – Traders slammed on the brakes in the U.S. municipal bond market during the second quarter of 2014, with the amount of debt changing hands down more than 10 percent from a year earlier,Municipal Securities Rulemaking Board data released on Thursday showed.

Kahn Litwin: – Benefits of municipal bonds. –  Looking to acquire interest at a tax free rate? Municipal bonds or “munis” are attractive to high income investors for this reason. Munis are debt obligations distributed by cities, counties, states, and other governmental units to private investors and are used to purchase services for the public, including schools, highways, and hospitals. These bonds are exempt from federal taxes and the majority of state and local taxes.

 

Bond Market

Financial News: – Safer banks make bond markets more risky. – In the offices of financial authorities worldwide, justified satisfaction at making big banks more stable is giving way to twinges of alarm that one side effect has been to make the bond market riskier.

Market Realist: – Must-know: Why bonds rallied despite weakness overseas. – Last week didn’t have a lot of stuff that could move the bond market, but bonds rallied anyway. Weakness in the Eurozone pushed yields lower, and U.S. Treasuries followed along.

LPL Financial: – Bond market perspectives. – The strength of European government bonds has supported demand for US Treasuries due to more attractive yield differentials. European influences may continue over the near term, but we expect U.S. bond yields to reconnect to  domestic economic data in coming months.

Financial News: – Views from the top: Bond liquidity and systemic risk. –  lack of liquidity in the bond markets – and the potential consequences of this in a time of market stress – sits foremost in the thoughts of many in finance at present.

ABC News: – What happens to bonds when everyone aims to sell? – If bonds start to tumble, should I sell my bond mutual fund? It’s a question investors are asking as expectations rise for a more volatile bond market. But a better question may be: How difficult will it be for my fund manager to sell?

 

Treasury Bonds

WSJ: – U.S. Treasury bond yield hits lowest since June 2013. – Benchmark government bond yields in the world’s most advanced nations on Friday fell to fresh lows of 2014 as geopolitical worries boosted the allure of haven bonds.

WSJ: – U.S. Government bonds claw back losses despite higher stocks. – U.S. Treasury bonds clawed back price losses on Monday, shaking off higher global stocks and looming new debt issuance.

Breitbart: – China appears ready to dump its U.S. Treasury bonds. – The real power to determine U.S. interest rates may be in the hands of China, according to Lombard Street Research. Facing an overvalued currency that is hurting corporate profits and slowing growth, China appears ready to dump its $1.3 trillion in U.S. Treasury bonds to drive U.S. interest rates up and strengthen the dollar.

Nerd’s Eye View: – Accelerating the rising equity glidepath, with Treasury bills as portfolio ballast? – Conventional wisdom suggests that retirees should own a “moderate” amount of equity exposure at the time of retirement – to help their portfolio grow and keep up with inflation for a long time horizon – and then slowly decrease their exposure to equities over time as they age and their time horizon shrinks. However, recent research has suggested that the optimal approach might actually be the opposite.

WSJ: – Treasury bonds higher on U.S. data. – U.S. Treasury bonds edged higher Friday, as the latest inflation and manufacturing reports bolster investor expectations that the Federal Reserve will be patient in raising interest rates.

 

Investment Grade Bonds

Bloomberg: – War risks slow company bond sales to least since July ’13. – Risks from conflicts in the Middle East and Ukraine are combining with concerns credit markets may have become too frothy to curb corporate bond sales.

Market Realist: – Why high-grade borrowers are upbeat about market conditions. – U.S. bond markets exhibited different trends for investment-grade and high-yield investors. On the one hand, investment-grade bond mutual funds saw an increase in fund inflows for the eighth consecutive week, while high-yield investors took money off the table in record outflows.

ETF Daily News: – Safe haven ETFs to consider in the current volatility. – Though the U.S. markets staged a solid recovery during the first half of the year, hitting multi-year highs and ignoring geopolitical threats and lackluster economic data, they have been in a defensive mode in the past few weeks retreating in many sessions.

ETF Daily News: – Safe haven ETFs to consider in the current volatility. – Though the U.S. markets staged a solid recovery during the first half of the year, hitting multi-year highs and ignoring geopolitical threats and lackluster economic data, they have been in a defensive mode in the past few weeks retreating in many sessions.

WSJ: – Banks, financial firms load up on cheap debt. – Banks and other financial companies worldwide are issuing bonds in the U.S. at a record pace, taking advantage of this year’s surprising slump in interest rates and a brightening outlook for the sector.

 

High-Yield Bonds

Barron’s: – High-yield bonds land in the junk pile. – High-yield bonds have been a problem waiting to happen for a long time. Risk of default is still low, but geopolitical risks, a stock-market pullback, and decreased liquidity finally caught up to the junk-bond market.

Business Insider: – Junk bond funds just experienced a 6-sigma event. – High-yield bond mutual funds saw outflows total an eye-popping $7.1 billion last week. “HY flowmageddon,” said Goldman Sachs’ Charles Himmelberg in a research note. “This is the largest HY outflow on record – a 6-sigma event when flows are scaled by mutual fund assets under management!” Sigma is another way of saying standard deviation. And the greater the number of standard deviations, the more unlikely the event.

CNBC: – Avoid high yield corporate bonds: Pro. – Edmund Shing, global equity portfolio manager at BCS Financial Group, says the relief rally in the market has come to an end and discusses volatility in high-yield corporate bonds.

Alacra Store: – U.S. corporate bonds see their first month of losses in 2014. – After posting 10 straight months of positive returns, U.S. speculative-grade corporate bonds finally saw declines in July, and they were not alone after six straight months of gains, investment-grade bonds also saw marginal declines for the month.

WSJ: – Investors pour $680 million into U.S. junk bonds in latest week. – Investors poured $680 million into funds dedicated to low-rated corporate debt in the week ended on Wednesday, according to fund tracker Lipper, snapping four weeks of declines that included the previous week’s record $7.1 billion weekly outflow.

 

Emerging Markets

FT: – Rethink over emerging markets buoys ETFs. – The exchange traded funds industry made a strong start to the second half of the year after gathering net inflows of $33.8bn in July, helped by record monthly inflows in Europe and a continuing recovery in the demand for emerging markets ETFs.

Investment Week: – EM debt nowhere near bubble territory. – First State Investments’ head of emerging markets debt Helene Williamson argues EM debt valuations have moved away from other fixed income markets, leaving it looking attractive.

Bloomberg: – Morgan Stanley sees Russian bond rout propelling buybacks. – Russian companies are set to seize on sliding asset prices to buy back their bonds, helping stem the third-biggest rout in emerging markets, according to Morgan Stanley and Erste Sparinvest.

China Money Network: – Emerging Asia will see $212B corporate debt mature by 2019. – About US$212 billion of rated corporate debt will mature in the emerging Asia region from the second half of 2014 through the end of 2019, representing about 2.2% of the US$9.5 trillion of corporate debt maturing globally during the same time period, according to estimates by credit rating agency Standard & Poor’s.

Interactive Investor: – Equities beating becalmed bonds in tactical asset allocator. – One asset class in the news in the past month has been emerging market bonds, as the market nervously awaited developments in the stand-off between the Argentine government and investors in its $95 billion bond default.

 

Investment Strategy

Eagle Tribune: – The search for income: Dividend-paying stocks vs. bonds. – Investors, especially retirees, often use their portfolios to generate income. With bond yields and interest rates on CDs and money markets at record lows, these investors are searching for alternatives to meet their income objectives. Spurred by the headlines in some of the popular consumer finance magazines many of them are heading down what could prove to be a perilous path, trading their bonds for dividend- paying stocks and the mutual funds that invest in them.

Market  Realist: – The “Great Deleveraging” that never happened: The U.S. debt problem. – For several years, media headlines have been filled with references to a mythical “deleveraging,” or a reduction in the level of U.S. debt. In reality, U.S. non-financial debt has increased, and this has real long-term consequences for the economy. Russ explains.

Donald van Deventer: – Kinder Morgan energy partners leads the 20 best value bond trades, August 11, 2014. – We show that investors have not demanded more spread as default risk goes up, which is why ranking “best value” by the spread to default ratio is important.

Time Money: – This danger is lurking among your plain vanilla investments. – Five years after financial crisis bond managers are again embracing risky, esoteric mortgage bonds. Here’s how to spot them — and protect yourself.

 

Bond Funds

ETF Trends: – SEC allows PIMCO to trade derivatives in BOND ETF. – PIMCO’s exchange traded fund adaptation of the flagship Total Return Fund could soon better mirror its mutual fund counterpart as the Securities and Exchange Commission gives the go ahead for derivatives usage.

David I. Templeton: – Bond funds continue to see inflows. – In spite of what seems like a near uninterrupted advance in the equity markets since the end of of the Great Recession, fund flow data does not suggest investors have reallocated out of bonds into stocks in any significant way.

Reuters: – U.S.-based bond funds post $8.2 billion outflows, biggest since Aug. 2013. – Investors in U.S.-based mutual funds pulled $8.2 billion out of bond funds in the week ended Aug. 6, marking their biggest weekly outflows in nearly a year, data from the Investment Company Institute showed on Wednesday.

Investorplace: – Just walk away from credit-default swap ETFs. – It’s no secret that we here at InvestorPlace love exchange-traded funds (ETFs). These baskets of stocks, bonds and other assets have leveled the playing field for regular retail investors. But do you really need to load up with every new product that comes along?

ETF.com: – Floating rate bond ETFs back in vogue. – With 10-year Treasury yields sliding, and longer-dated debt looking prospective again as the Federal Reserve signals that an interest rate hike isn’t as imminent as the market had originally expected, floating rate bond ETFs have been out of favor for much of this year. But now that tide seems to be turning.

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