This Week’s Top Bond Market Stories – August 24th Edition

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Learn Bonds: – High on high-yield. – High-yield bonds, or “junk bonds” as they’re also known, are often given a wide pass by non-institutional investors either because they don’t know much about them, or because they’re believed to be risky investments. Much like pit bulls, high-yield bonds have an undeservedly poor reputation.

Learn Bonds: – The minimum wage – Interesting observations to consider. – As a bond investor, I take great interest in discussions surrounding wage growth.  Wage growth is one mechanism through which more money can end up in the hands of the consumer.  And more money available for purchasing goods and services could cause upward pressure on prices, something bond investors should pay close attention to.

Learn Bonds: – Nine dynamics of corporate bond default loss risk. – There are nine factors involved in corporate bond default loss risk. In this article, we will explore all nine factors in more detail.

Learn Bonds: – AMC Networks: “Breaking Bad” bonds. – Charles Margolis takes a closer look at AMC networks December bond issue, currently yielding 5.1%.

Learn Bonds: – Don’t get ripped off by this bond market shenanigan. – Financial Lexicon exposes this sneaky little trick some brokers are using to screw their clients.

PIMCO: – Bond market viewpoints. – What is priced into the bond market in terms of its outlook for the Federal Reserve? Does the increase in interest rates sufficiently reflect the market’s perceived policy shifts?

WSJ: – Fed debates what’s most effective: Bond buys or promises on rate. – Federal Reserve officials gathering in Jackson Hole, Wyo., this week with academics, private bank economists and others will ponder a question that will influence Fed decisions in the coming months: Which of its novel monetary tools are doing the most for the economy?

Trustnet: – How I’m protecting my fund against an equity/bond sell-off. – Equities and bonds will continue to be highly correlated for the foreseeable future, according to Darwin’s David Jane, who says investors must look further afield to protect their capital.

Felix Salmon: – How bond fund investors will act in an era of rising interest rates. – All the bond funds have seen a bit of a dip in recent weeks, but it’s the kind of move they’ve seen many times in the past, and it’s not the kind of move which is likely to cause an individual investor to panic. The main thing you learn from looking at this chart, indeed, is not that we’re in the midst of a historic bond-market selloff, but rather just that bond funds in general are pretty good at doing what they’re meant to do — which is to broadly retain their value over time, and with any luck go up over the long term, with reasonably low volatility.

Bernardi Securities: – Separate account, laddered portfolios vs. municipal bond funds. – Almost universally, our client’s separate account, laddered portfolios handled last quarter’s turmoil much better than the broader bond market. This is a similar storyline to what our clients’ portfolios experienced during the 2008-2009 financial crises. These portfolios avoided much of the damage resulting from the panicked selling of many bond funds, bond ETFs and hedge funds.

ETF Trends: – Retail investors dumping EM bond funds faster than pros. – Tens of billions of dollars have been pulled from emerging markets bond and equity funds this year, but the outflows from bond funds haven massive since the start of June. That would be just after tapering of quantitative easing became an everyday topic of discussion.

Benzinga: – Bond Investors Beware: Mutual fund outflows accelerating as interest rates climb higher. – so far for the month of August, $19.7 billion has been pulled out of U.S. bond mutual funds and ETFs. This is causing interest rates to continue rising, and all of this has occurred before the Federal Reserve has even begun adjusting its monetary policy. As I’ve stated many times, people are underestimating the impact of the upcoming policy changes, and higher interest rates are here to stay.

The Fat Pitch: – The big move down in bonds may be over. – Bond yields are either close to stabilizing or, potentially, reversing lower. Most Individual and professional investors have already made a big move out of bonds, so they may already have hit the bottom.

InvestmentNews: – Junk bond junkies are going short (term). – Rising interest rates have yield-starved investors moving into short-term high-yield-bond funds, and mutual fund companies are planning new products to meet the demand.

Felix Salmon: – The bond market’s fear of Summers. – The bond markets have moved dramatically over the past couple of months, and no one really knows why. It seems silly to rule out Summers as one of many possible causes — but with any luck we’ve got over our bad Greenspan-era habit of judging the Fed chairman by the movements of markets. The Fed’s biggest and most important job right now is to get a grip on the unemployment rate — something which has pretty much zero correlation with markets.

Calafia Beach Pundit: – 3 cheers for higher yields. – Ten-year Treasury yields are up 130 bps from their all-time lows, and that’s absolutely great news. Yields are not up because the market is worried about a tapering of quantitative easing. Yields are up because both the market and the Fed realize that the economic fundamentals are improving.

Bonddad Blog: – Three ways to look at bond yields. – The impact of the Fed’s “taper” on longer term bonds has been one of the big events of the last three months. It is well known that bonds tend to serve as a long leading indicator for the economy (think of it as the “price of money”), but there are several different ways to look at bond yields: (1) whether they are rising or falling; (2) their “real” rates, i.e., their relationship to inflation; and (3) the yield curve, which is the relationship between shorter term and longer term bonds. Depending on how you look at bonds, the story is quite different.

Stockcharts: – Bond yield resumes uptrend. – There is little doubt that bond yields have bottomed and that the thirty-year bull market in bond prices has ended. That’s bad news for bond prices that fall when yields rise.

The Big Picture: – What do outsized bond yield % increases mean? – Nice chart from Andrew Lapthorne of Société Générale describing the spike over the past few months in bond yields.

Sober Look: Year-to-date performance across fixed income. – Given the ongoing volatility in fixed income markets, it’s time to once again to take a look at performance. The chart below shows where we stand on a year-to-date basis for major asset classes from a USD investor’s point of view.

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