This Week’s Top Bond Market Stories – August 23rd Edition

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LearnBonds

LearnBonds: – European bond yields at record lows. – European Bond yields reached record lows this week. These lows are not the result of governmental policies. The rates are low because the economies of Europe are experiencing some pretty rough times.

LearnBonds: – What Kinder Morgan consolidation means for income investors. – Last week, Kinder Morgan Inc. (KMI) announced that it will acquire all of the outstanding equity securities of Kinder Morgan Energy Partners, L.P. (KMP), Kinder Morgan Management, LLC (KMR), and El Paso Pipeline Partners, L.P. (EPB), thereby creating the largest energy infrastructure company in North America. What does this consolidation into the largest energy infrastructure company in North America mean for income investors?  In particular, there are three things worth noting.

LearnBonds: – Making sense of market volatility. – There is nothing on which fixed income traders can trade. Volumes are pitiful, there is nothing especially attractive in the fixed income markets and we appear to be locked into a trend growth economy in the United States. Japan remains stuck in a decades-long economic malaise and the Eurozone could join Japan in the land of misfit economies. Face it folks, the bond market seems priced to perfection. Until we have a clearer picture on Fed policy, economic growth and wage growth, traders could continue to manufacture volatility.

LearnBonds: – How much do bond funds really cost you? – Bond funds represent the easiest and most convenient way for fixed-income investors to access the bond market. Diversified amongst dozens, hundreds, or even thousands of individual issues, funds offer simplicity for those without the time, energy, or wherewithal to build bond portfolios of their own.

LearnBonds: – Evaluating the future of IBM. – Today, making machines – in this case, computers and their components – isn’t IBM’s core business any more. It’s computer software and services, and it’s aiming at the burgeoning markets for Cloud computing, Big Data and mobile applications for its business analytics software. Grasping the impact of that transformation is the key to evaluating the future of IBM.

  To see a list of high yielding CDs go here.  

Municipal Bonds

Bloomberg: – New York’s East Hampton selling most bonds since ’06: Muni deals. – East Hampton, the Long Island town where billionaire Ronald Perelman and comedian Jerry Seinfeld own homes, is selling the most debt in eight years to replace equipment and make repairs after Hurricane Sandy.

AAM: – The road to navigating the changing municipal bond market. – Municipal bond participants are following closely the state of affairs in Puerto Rico and Detroit. In each case the outcome and changes in the municipal market landscape will likely be driven as much by politics as pure economics.

Financial Express: – Moribund munis. – The Narendra Modi government’s first ever budget was marked for its plans to reviving infrastructure investment in the country, and a key announcement was for developing 100 smart cities over the years. Finance minister Arun Jaitley called it Modi’s “vision” and allocated R7,060 crore for the scheme. He later said in Parliament that there would be more allocations in the coming budgets.

Bloomberg: – Municipal-debt rules proposed to ensure best price sought. – U.S. securities regulators are moving to require brokers to seek the best prices available when trading state and local bonds for customers, a step aimed at keeping investors from being shortchanged.

FMSBonds: – Agreement helps buoy Puerto Rico bonds. – Buoyed by an agreement to extend the credit for Puerto Rico’s power authority, the commonwealth’s general obligation bonds are on the upswing.

Mihalek Law: – Excessive bond markups and markdowns. – Although there is no question that the broker/dealer is entitled to add a markup to the price it pays for the securities, the markup must be fair and reasonable. Whether that markup is fair and reasonable is determined on a case-by-case basis. A markup may be “excessive” when it bears no reasonable relation to the prevailing market price.

 

Bond Market

Bloomberg: – Why are bonds and stocks acting strangely? – The past week saw a dynamic in financial markets that, not long ago, would have been deemed quite unusual: Prices of all kinds of assets, from safe government bonds to risky stocks, rose together. The movements continued to confound the once-traditional pattern, in which bond prices rise and stock prices fall when investors expect the economy to perform poorly, and vice versa. There are various explanations, some more consequential than others.

Bloomberg: – Missing MBS in bond indexes distort funds, Citigroup says. – After years of using purchases of U.S. government-backed mortgage securities as a stimulus tool, the Federal Reserve owns almost a third of the debt outstanding.

About.com: – The one event that will make or break the bond market. – If there’s one thing that virtually all investors can agree on, it’s that the U.S. Federal Reserve will raise interest rates at some point in 2015. What remains to be seen, however, is when the first rate hike will occur. The uncertainty surrounding this issue makes the question of timing – and not the first rate increase itself – the key to bond market performance in the coming months.

Great Speculations: – Bond Markets: Fasten your seatbelts, possible turbulence ahead. – Where yields and volatility are today, bond markets do not seem to be anticipating some key inflection points in monetary policy which are lining up on the horizon.  As the Fed moves its focus from ending QE to increasing interest rates, bond markets may be in for a bumpy ride.

Fox Business: – How the average Joe can invest in bonds. – Brean Capital managing partner Peter Tchir and FOX Business contributor Bob Rice discuss how to invest in fixed income.

 

Treasury Bonds

Bloomberg: – Treasuries fall on easing political tensions, 14-month-low yield. – Treasury 10-year notes fell for the first time in four days as yields at almost the lowest level in 14 months and easing geopolitical tensions from Ukraine to Iraq eroded demand for the safest securities.

WSJ: – U.S. Government bonds boosted by CPI data in U.S., U.K. – (Subscription Required) Treasury bonds strengthened Tuesday as tame inflation reports from the U.S. and the U.K. bolstered investors’ expectations that major central banks will be patient in raising interest rates.

Wealth Management: – Treasury bonds may yield some ground. – Flows into and out of Treasury ETFs indicate bonds may soon be overbought.

Bloomberg: – Treasury declines push yield toward 7-year high versus G-7 peers. – Declines in Treasuries pushed yields toward a seven-year high versus their developed-market peers before Federal Reserve Chair Janet Yellen speaks about employment at a conference of central bankers tomorrow.

Market Realist: – Why there is robust demand for U.S. Treasuries. –  In the primary markets, the U.S. Treasury auctioned $171 billion worth of debt in the week ending August 15. Both short-term Treasury bills and longer-term Treasury notes and bonds were auctioned. Overall, demand was robust, with strong bidding evident from both domestic and overseas investors.

 

Investment Grade Bonds

WSJ: – Banks, financial firms load up on cheap debt. – (Subscription Required) Banks and other financial companies world-wide 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.

Donald van Deventer: – Bond market battle: Berkshire Hathaway Vs. Kinder Morgan Energy Partners. – Two financial market titans head the list of “best value” bond trades with maturities of 20 years or more as of August 15, 2014. We last ranked the best value fixed rate corporate bond issues on July 25, 2014 for maturities of 20 years or more.

FT Alphaville: – Foreigners abandon U.S. corporate debt. – (Subscription Required) Net foreign demand for US corporate bonds in the past five years seems to have moved inversely to net foreign demand for US long-term securities as a whole.

WSJ: – U.S. Bond issuance nears $1 trillion. – (Subscription required) U.S. corporate-bond issuance is hurtling toward a record for the third consecutive year, as companies take advantage of a surprising interest-rate decline to stock up on cash.

 

High-Yield Bonds

FT: – Investors buy junk bond recovery more time. – (Subscription Required) Defaults low and returning investors still seek high yielding assets.

CNBC: – One investor’s junk (bond) another’s treasure. – CNBC’s Jeff Cox, and Michael Kastner, Halyard Asset Management, discuss why retail investors are steering clear of junk bonds while institutional money is buying.

Bloomberg: – PIMCO scoops up quality junk cast off in high-yield fund exodus. – Pacific Investment Management Co. (PCARX) has been snapping up some of the higher-rated junk bonds dumped by speculative-grade debt managers amid the recent exodus from funds.

InvestorPlace: – Junk bond funds – What record outflows are telling investors. – Investors pulled a record $7.1 billion from junk bond funds in the second week of August, according to the Lipper U.S. Fund Flows report. The massive outflows — which are the biggest since Lipper records began in 1992 — also included the largest exodus from stock funds and U.S. stock ETFs since February.

Bloomberg: – Love affair with junk resumes with biggest inflows of ’14. – U.S. high-yield bond funds recorded the biggest weekly inflow of 2014 as investors returned to the riskiest corporate debt following an unprecedented withdrawal at the start of August.

 

Emerging Markets

Bloomberg: – Ex-IMF’s Kato concerned Bernanke shock faced by emerging markets. – Emerging markets are at risk of revisiting last year’s “Bernanke shock” should the Federal Reserve signal an end to near-zero interest rates earlier than investors anticipate, according to Takatoshi Kato, once a deputy managing director at the International Monetary Fund.

Latinfinance: – LatAm bonds set for September rebound. – After a lull in August, Latin American borrowers are expected to return to tapping international debt markets in the coming weeks.

ICI: – Sizing up mutual fund and ETF investment in emerging markets. – Funds’ participation in the stock and bond markets of EM countries has indeed increased markedly in recent years. Nevertheless, funds hold a relatively small amount of the total value of stock and bonds of EM countries, which suggests that any concerns about the increased presence of funds in emerging markets could be overemphasized.

WSJ: – Bond sales in Africa losing allure. – (Subscription Required) Cracks are forming in Africa’s debt boom. African governments are on pace to issue a record amount of bonds in 2014 for a second consecutive year, jumping at the opportunity to borrow at low interest rates to fund infrastructure and other spending.

Business World: – World’s biggest wealth fund takes focus off emerging markets. – Norway’s €663bn sovereign wealth fund, the world’s largest, is slowing its expansion into emerging markets as it scales back a two-year mission to tap into the fastest growing markets.

 

Catastrophe Bonds

Reuters: – Insurers can withstand $100 bln natural catastrophe -Zurich. – The growing market for catastrophe bonds has bolstered the insurance industry to the extent it could cope with a $100 billion disaster – bigger than that of Hurricane Katrina, the head of Zurich Insurance’s general insurance division said.

 

Investment Strategy

Stock Traders Daily: – Shorting the U.S. Treasury bond with ETFs. – Global economic concerns are real. Domestic economic concerns are real. Bond market investors are traditionally smarter than stock market investors. Do you really want to short the long-term U.S. Treasury bond?

Financial Post: – Don’t fall into the trap of ignoring investment risks to chase returns. – It is shaping up to be another good year in the equity markets as investors have ignored calls for a correction and continue to buy the dips. Put another way, it is clearly still what pundits term a “risk-on” market.

ETF.com: – Bull or bear, focus on asset allocations. – As a quantitative firm, we generally refrain from waxing philosophical about economic conditions and policy. We subscribe to the theory that markets are chaotic—while trends emerge and persist, predicting those trends is nearly impossible.

Zacks: – 5 Strong buy diversified bond mutual funds to excel. – We share with you 5 top rated diversified bond mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect these mutual funds to outperform their peers in the future.

MoneyBeat: – Should bond investors move up in quality? –  Should investors be buying bonds from higher-rated companies? Analysts at the Schwab Center for Financial Research, which provides guidance for individual investors, say the answer is yes.

 

Bond Funds

Market Wired: – PIMCO Plans to launch three new ETFs; Will close four others. – PIMCO intends to launch three new actively managed exchange-traded funds (“ETFs”) — the PIMCO Fundamental IndexPLUS AR Active ETF, the PIMCO International Fundamental IndexPLUS AR Strategy Active ETF and the PIMCO Foreign Bond Active ETF (US Dollar Hedged). While closing four underperforming funds.

Zacks: – New active multi-asset ETF to ride out current turmoil. – Actively managed ETFs are gaining immense popularity in recent months courtesy of increasing demand and the potential for more favorable regulations. While these represent just a small slice of the broad ETF world, they aim to beat the benchmark index or the passively managed counterparts even if the odds are against them.

Investment News: – Fidelity turns its nose up at unconstrained bond funds. – Many advisers like the funds’ flexibility when interest rates rise, but a Fidelity manager isn’t impressed.

WSJ: – Investors pour into Vanguard, eschewing stock pickers. – (Subscription Required)  Investors are pouring money into Vanguard Group, the epitome of the hands-off approach to investing, flocking to funds that track market indexes and aren’t run by stock pickers or star managers.

ETF.com: – Daily ETF Watch: FlexShares plans bond fund. – FlexShares, the ETF unit of Northern Trust, perhaps best known for its $3 billion Morningstar Global Upstream Natural Resources ETF, has plans to launch a fundamentals-based corporate bond ETF. While there is a slew of smart-beta equity ETFs on the market, the fundamentally weighted bond space has been slow to gain traction.

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