This Week’s Top Bond Market Stories – August 2nd Edition

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LearnBonds

LearnBonds: – 4% ten-year Treasury by Turkey day? – Will rates really get as high as 4% by the time Thanksgiving comes around. Adam Aloisi takes a closer look at the possibilities and gives advice on how to structure your portfolio in any event.

LearnBonds: – Bed bath and beyond issues bonds offering “real” returns. – In the post-financial-crisis world, cost cutting and stock buybacks have been the name of the game for many public companies. Concerning share repurchases, many companies haven’t been shy about leveraging up their balance sheets in order to have more funds available for stock buybacks.

LearnBonds: – In the trenches – What fixed income pros see from the front lines. – The purpose of our weekly “In the Trenches” report is to provide insight into what fixed income professionals are seeing on the front lines. This often differs from the 20,000 feet perspective provided by many other market information sources. Front line views of the fixed income markets are often criticized, sometimes mocked, in the financial media, but it has been our experience that when all is said and done, the front line view tends to be correct in the end.

LearnBonds: – DuPont – A venerable giant in transition. – DuPont hasn’t missed a dividend payment for a single quarter over the last 110 years. But does that mean you should buy it?

  To see a list of high yielding CDs go here.  

Municipal Bonds

Bernardi Securities: – 2014 mid-year municipal market update. – A look back at the municipal bond markets first half performance and the outlook for the second half of the year.

ETF Trends: – Passive muni ETFs shed Puerto Rico exposure. – Passively managed exchange traded funds usually do not make wholesale changes to their portfolios. Most of the underlying indices for passive ETFs rebalance quarterly and even then, holding and sector changes often boil down to just a few basis points.

Barron’s: – Munis gain on low July new issue volume; Time to rebalance? – It’s been a slow summer for muni-bond issuance, and that’s been to the benefit of muni-bond prices. So far 2014 has produced $172 billion of new bonds, according to Bank of America Merrill Lynch, which is down 14.5% from the same period last year.

Bloomberg: – Record rally revived with least issuance since 200. – The rally in the $3.7 trillion municipal market is picking up momentum, extending an unprecedented streak of gains as issuance sputters to the slowest pace in 13 years.

Indexology: – Late July muni minutes. – Long-term bonds have posted solid gains thus far in 2014, with rates holding low longer than most expected. The composition of the municipal bond market is heavily weighted with short duration bonds. The looming sentiment of rising rates and inflation has investors focused on reinvestment risk; however, a supply imbalance systemic of voters’ hindrance for governments to take on additional debt has municipals as a whole outperforming their peers.

 

Bond Market

Star Tribune: – Where have all the bonds gone? – Detroit’s bankruptcy trial will spotlight municipal bonds. A bigger issue is the short supply nationwide.

WSJ: – Heeding 1994′s bond-market lesson. – Nobody knows exactly when the Federal Reserve will raise rates. But when it does, it could throw the bond market into a tizzy.

LPL Financial: – Bond yields continued to decline over the second quarter of 2014. – Bond market strength has been broad based in 2014. While prices increased, and yields fell, for top-quality Treasury securities, yields on many segments of the bond market declined even more. The low yield environment that is challenging income-seeking investors persists.

Citywire: – Pace of U.S. rates rise will surprise markets, says GSAM manager. – U.S. interest rates will rise as expected early next year but at a quicker pace than markets expect, according to Goldman Sachs AM’s Iain Lindsay.

Bond Vigilantes: – The yield-dampeners: Will interest rates inevitably rise when QE ends? – After the ‘taper tantrum’ of 2013, many commentators predict that the catalyst for a sell-off in fixed income assets could be the ending of quantitative easing by the US Federal Reserve later this year. Here we present an alternative view to this consensus thinking, analysing a number of dynamics in bond markets that have surprised investors during this period of extraordinary monetary policy.

Investment Week: – Can this trio of ‘yield dampeners’ protect bonds from rate rise? – Investors predicting historically-low interest rates will rise after the end of quantitative easing are misguided, M&G’s fixed income desk have said.

 

Treasury Bonds

ETF Daily News: – Are Treasurys about to spike? – It pays to stay diversified among many asset classes, including bonds. Today, I’m seeing signs of U.S. Treasurys strengthening relative to corporate bonds (and probably in absolute terms as well). We can find out which one is likely to outperform the other by looking at a relative strength chart of two ETFs.

Global Finance: – U.S. Treasury bonds fall on upbeat economic data. – U.S. Treasury prices pulled back Thursday on an encouraging labor-market report, tilting the 10-year yield back above 2.5%.

WSJ: – U.S. Government bonds gain ground; German bonds rally. – Treasury bonds strengthened along with their counterparts in Germany on Tuesday as demand for haven bonds perked up.

FA Mag: – Agency bonds a higher-yielding Treasury alternative. – For an investor seeking a conservative product with a touch more risk than a government-backed bond, an agency bond is an option that offers a higher yield.

WSJ: – U.S. Government bonds suffer biggest selloff since November. – U.S. Treasury bonds suffered the biggest one-day selloff since November as the latest data showed the U.S. economy rebounded sharply from the winter doldrums.

Charles Schwab: – Is now the time to invest in Treasury inflation-protected securities? – Now that inflation is hitting the Federal Reserve’s target level of 2%, should investors be adding Treasury Inflation-Protected Securities (TIPS) to their portfolios? The recent rise in inflation gives us a more favorable view on the valuation of TIPS.

 

Investment Grade Bonds

Businessweek: – Verizon claws yield from record sale: Corporate finance. – Verizon Communications Inc. is clawing back some of the extra yield it paid investors in the biggest corporate-bond sale ever with a debt exchange that would extend maturities while trimming interest costs.

Business Insider: – Corporate America is borrowing like crazy. – In Business Insider’s latest Most Important Charts In The World feature, Gerard Minack of Minack Advisors alerted us to the following chart, which shows how much corporate debt has ballooned since the financial crisis.

Zacks: – 5 Best performing investment grade bond mutual funds in 2014. – The 5 best-performing year-to-date investment grade bonds that also sport a Zacks Mutual Fund Rank #1 (Strong Buy). Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but the likely future success of the fund.

 

Junk Bonds

Wolf Street: – How bad can the junk-bond sell-off get? So bad it’ll take down stocks. – Late Friday, when the strategy folks at Goldman Sachs downgraded global stocks to “neutral” for the next three months, they gave a reason that would have been peculiar in normal times: “a sell-off in bonds could lead to a temporary sell-off in equities.”

Smart Investor: – Junk bonds face turning point. – Markets are riding high but valuations on the junk bond market look stretched.

BlackRock: – Investor fatigue setting in? – Despite a generally positive tone to earnings season, investors may be finally showing signs of fatigue, as seen by aggressive selling of risky assets, namely high yield and U.S. equities. Russ K explains the implications.

Talk Markets: – A dangerous boom in unsound corporate debt. – In his newest weekly column, John Hussman talks about a feature of the current echo bubble era that we believe will turn out to be an extremely important one. Readers of this site know of course that we have frequently sung from the same hymn sheet, but it is a topic the significance of which cannot be stressed enough.  After briefly recapping the history of the housing bubble and the ensuing credit crisis.

Reuters: – Third straight week of outflows from high-yield funds. – US high-yield funds have seen a third consecutive week of outflows, Lipper reported on Thursday, with US$1.476bn being pulled out of the asset class.

 

Emerging Markets

FT: – Foreign money returns to Russian bond market. – Outflows of foreign money from the Russian bond market due to the Ukraine crisis were almost completely reversed by mid-July, according to analysis by Standard Chartered.

ValueWalk: – The outlook for emerging market bonds. – In the latest piece from Research Affiliates, Shane Shepherd, head of fixed income research, looks at emerging market bonds and how they continue to exhibit high real yields and improving credit quality. With emerging market currencies likely to strengthen, the article explains why emerging market bonds issued in local currencies might be a solid addition to a diversified portfolio.

Citywire: – U.S. bonds biggest threat to emerging markets, says JPM. – Richard Titherington, manager of JPMorgan Emerging Markets Income, says another bout of turbulence in US bonds is ‘biggest single risk’ for his fund.

DealBook: – Q. and A.: Exploring what’s behind the battle over Argentina’s debt. – Argentina is on the verge of defaulting on billions of dollars of government debt. It has reached this point after years of battling a group of New York hedge funds that have been demanding full payment on bonds that defaulted in 2001. The battle has already rocked international debts markets and may affect the economies of other countries in the future. Below are answers to questions about the fight, which has taken complicated twists and turns over the years.

FT: – Russian assets look cheap, but could get cheaper. – If financial markets are anything to go by, the toughest economic sanctions against Russia since the end of the Cold War have been a damp squib.

 

Investment Strategy

The Star: – Why bond mutual funds are a great way to control risk. – Resist the temptation to sell your bond funds because of their low returns. They provide needed ‘ballast’ in the event of stormy stock markets.

Bloomberg: – Loomis hoards easiest-to-sell bonds as Yellen plots exit. – Loomis Sayles & Co. is so convinced that bond prices are about to fall that it’s hoarding a record proportion of easy-to-sell securities in its flagship debt fund.

ETF Channel: – 25 dividend giants widely held by ETFs. – These 25 stocks all yield over 5 per cent and are available via most ETFs.

Forbes: – Zweig bond model remains bullish. – As we entered 2014, just about every Wall Street analyst said that interest rates would move higher.  Goldman Sachs estimated that the 10-year Treasury bill would end the year at 3.25%.  Not one analyst predicted the 10-year would be below 3%.

Financial Chronicle: – Look beyond debt mutual funds, your options are plenty. – The recent changes in tax provisions on debt mutual funds brought to fore the various fixed income options available for investors in the market. It is also pertinent to see whether one should go beyond debt mutual funds and look at the alternatives when it comes to investing in debt products.

 

Bond Funds

Digital Journal: – Pay less to earn more: 3 low-expense funds to buy now – Best of funds. – In this article we will discuss about fund expenses. Fund expenses are paid indirectly from fund assets throughout the year. Lower charges will obviously allow larger share of the capital to be invested and also help investors in earning higher profits.

MPI: – The case for careful analysis of nontraditional bond funds. – Despite their popularity, some feel that nontraditional bond funds are simply trading rate risk for credit risk in the form of high yield and emerging markets debt. With tighter correlations between low quality credit and equities, such credit risk doesn’t quite match the conservative stance many investors seek in their fixed income allocations.

Businessweek: – No bonds, no problem as PIMCO increases bets using swaps. – If corporate bonds don’t trade frequently enough for you, one solution is to turn elsewhere.

MarketWatch: – Does your mutual fund own Argentina’s bonds? – Hedge funds aren’t the only investors with money on the line as Argentina grapples with the consequences of a missed debt payment.

Morningstar: – Diversification for the sake of diversification. – Vanguard’s Total International Bond exchange-traded fund is a poor investment today.

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