This Week’s Top Bond Market Stories – August 30th Edition

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LearnBonds

LearnBonds: – Are bonds and commercial real estate the perfect mix? – Financial advisors are often quick to point out that investors absolutely need an allocation to stocks in their portfolios.  The following chart, however, may challenge conventional wisdom.

LearnBonds: – How many bonds should you own? – Bond investors who opt to look at single issues as opposed to pooled products like ETFs, CEFs, and open-ended bond funds, have a variety of choices to make: how much credit risk to take, what kind of blended duration to employ, and yes, how many total bonds to carry in the portfolio. While fund managers are paid to make those decisions, the do-it-yourself, individual investor needs to take charge of matters on their own.

LearnBonds: – Making sense of the corporate bond market in these amazing times. – This is the third year in a row that corporate bond sales have risen to new record highs through this time of the year. So the supply of corporate bonds is up…and up strongly. What has happened to corporate bond prices?

LearnBonds: – Take a look at Johnson and Johnson – A true “dividend aristocrat” – If you’re a trader, you might shy away from Johnson and Johnson (NYSE: JNJ) at the moment. The giant healthcare products stock gave up six-plus points in 10 days this month after hitting its all-time high at $106.47 on July 7. But it’s not the traders I’m addressing right now – it’s long-term investors.

  To see a list of high yielding CDs go here.  

 

Municipal Bonds

The Seattle Times: – Closed-end muni funds open you up to risk. – Investors should consider how much risk they are taking to get yield. Here are three major risks that you may not have put into your income equation.

Bloomberg: – U.S. bank liquidity rule said to exclude municipal bonds. – Municipal bonds will be excluded from the group of easily sellable assets that banks can use to show they’re able to survive a credit crunch, according to a person familiar with the rule.

Bloomberg: – Puerto Rico lures Franklin as equity funds buy junk: Muni Credit. – Franklin Resources Inc. (BEN) is leading money managers in adding junk-rated Puerto Rico bonds to mutual funds that focus on equities or other asset classes, even as the island’s main power utility moves to restructure.

Janey: – Mid-year municipal market review and outlook. – We recommend investors consider only high quality municipal bonds, especially in the local government sector. Municipals are still an important fixed income option, but credit selection remains increasingly important.

Forbes: – Supply-demand dynamics should support muni market. Despite the headline news surrounding a small handful of municipal issuers, the muni market has performed well this year and remains underpinned by strong supply and demand dynamics. It’s one of the key themes identified by the MacKay Municipal Managers (MMM) team at the beginning of the year and, if anything, it’s playing out even more decisively than they predicted.

 

Bond Market

Barron’s: – In the bond market, it’s no time for heroes. – (Subscription required) With interest rates as low as they are, it has become much more difficult to squeeze out positive returns, especially for those fixed-income managers hewing to a cautious approach. Among the investors in that camp are Tad Rivelle, chief investment officer, fixed income, at TCW, and Laird Landmann, co-director of U.S. fixed income at the Los Angeles-based firm. TCW manages about $142 billion of assets.

Market Realist: – Fed’s July FOMC minutes have implications for stocks and bonds. – The Fed holds Federal Open Market Committee (or FOMC) meetings eight times a year. The 12-member FOMC is the Fed’s main policy setting body.

Chad Shoop: – The demise of American yield. – The smart money, aka Wall Street, typically sets the tone in the market, leaving retail investors a step behind.

LPL Financial: – Bond yields typically begin to move four to six months ahead of a rate rise. – A steadier rise in interest rates occurs once the first rate hike has passed. With the 2-year Treasury is the most sensitive to rate changes.

Market Realist: – Why bond investors are focusing on credit ratings and quality. – High-yield bond funds have seen some wild swings lately. A record of $7.1 billion was withdrawn in the week ending August 8. In the week ending August 15, some of those flows reversed. Net flows into junk bond funds were positive because overseas risk perceptions receded. Investors also appeared to have oversold the asset class the previous week. They looked to get back into the market at lower valuations.

 

Treasury Bonds

Bloomberg: – Treasury five-year note yields climb most since April on Yellen. – Treasury five-year notes tumbled, pushing yields up the most in four months, as comments from Federal Reserve Chair Janet Yellen and minutes from the last policy meeting reinforced bets the central bank will begin raising interest rates next year.

Bloomberg: – Treasury five-year note yields climb most since April on Yellen. – Treasury five-year notes tumbled, pushing yields up the most in four months, as comments from Federal Reserve Chair Janet Yellen and minutes from the last policy meeting reinforced bets the central bank will begin raising interest rates next year.

Bloomberg: – U.S. Treasuries advance on value versus G-7 peers. – Treasuries advanced, pushing 10-year yields to the lowest level in almost a week, as the collapse of yields in Europe prompted investors to reach for higher-yielding U.S. government bonds.

NASDAQ: – Treasury bonds rise as Ukraine tensions trump U.S. GDP. – Treasury bonds strengthened Thursday as a resurgence of tensions between Ukraine and Russia boosted the demand for haven bonds.

Market  Realist: – Why Treasury auctions impact investors and financial markets. – The U.S. Treasury Department issues Treasury securities to finance government debt. Maturities on the Treasury securities vary. Treasury securities are sold to institutional and retail investors. These auctions are the U.S. Treasury’s main supply source.

 

Investment Grade Bonds

ETF Trends: – Investors should hold higher quality corporate bond ETFs. – After the recent sell-off in high-yield bonds, investors should take a second look at investment-grade corporate bond exchange traded funds as a more stable play for the fixed-income market.

ETF Trends: – Investors should hold higher quality corporate bond ETFs. – After the recent sell-off in high-yield bonds, investors should take a second look at investment-grade corporate bond exchange traded funds as a more stable play for the fixed-income market.

ETF Trends: – High-quality corp. bond ETFs show double-digit annual returns. – High-quality corporate bond exchange traded funds have been one of the best performers in the fixed-income space, with investment-grade corporate debt on pace to generate double-digit annual returns.

Bloomberg: – World’s biggest wealth fund says U.S. corporate debt boom ending. – The head of debt investment at Norway’s $880 billion sovereign wealth fund, the world’s largest, said a rally in U.S. corporate bonds may be coming to an end.

Market Realist: – Why high-grade issuers stayed away from capital markets. – Despite favorable market conditions, high-grade corporate bond issuance was muted in the week ending August 15. Issuance volumes dropped by 33% over the prior week. A total of $16.7 billion was issued over 17 transactions in the corporate investment-grade bond market in the week ending August 15.

 

High-Yield Bonds

FT: – No need to panic about high-yield bonds. – (Subscription required) Keep calm and carry on has characterised the market for high-yield bonds despite a recent bout of intensive selling by retail investors.

ETF Trends: – Junk bond ETFs say return to me; Investors listen. – After a wild July that saw investors, primarily of the retail variety, flee high-yield bond exchange traded funds, junk is back in style with week ending Aug. 20 representing the best week of inflows to junk bond ETFs this year.

IFR: – High-yield investors see easily digestible deal pipeline ahead. – High-yield investors expect the roughly US$30bn–$40bn pipeline of new deals in September and October to come in smaller bite-sizes and to be easily digested.

ETF Trends: – High-yield muni ETF navigates its way to new highs. – Despite Puerto Rico debt restructuring concerns, ongoing debt settlement talks in Detroit and elevated fears of additional public pension-induced municipal bankruptcies in other parts of the U.S., municipal bond ETFs have been solid performers in 2014.

Morningstar: – High yield bonds are expensive. – High yield bonds do not look stretched in terms of excess yield, but they do look expensive in terms of total yield.

Investment Week: – High yield: Has liquidity risk premium been squeezed out? – (Registration required) High yield investors are not being adequately compensated for liquidity risk, argues David Vickers from Russell Investments.

Scott Arterburn: – Who has the better junk….bonds? – HYG and JNK are the largest high yielding corporate bond ETFs. They look to be very similar. SO why does HYG always seems to beat JNK?

 

Emerging Markets

ETF Trends: – Considering your emerging market bond ETF options. – With more exchange traded fund options now available, fixed-income investors can expand their portfolios to include emerging market debt exposure. However, not all ETFs are created equal, so potential investors should review the various offerings before diving in.

FT: – Argentine default fails to halt emerging market bond rally. – (Subscription required) In late December 2001, when Argentina defaulted on nearly $100bn in debt, it took emerging market bonds just 48 hours to start staging a rebound, recalls Jerome Booth, a veteran emerging market analyst.

FT: – Argentine default fails to halt emerging market bond rally. – (Subscription required) In late December 2001, when Argentina defaulted on nearly $100bn in debt, it took emerging market bonds just 48 hours to start staging a rebound, recalls Jerome Booth, a veteran emerging market analyst.

Reuters: – Emerging market stock and bond inflows slow in August-IIF. – Emerging markets took in only $9 billion in stock and bond investments in August, below the average for the past three months and lackluster even compared to prior Augusts, a global financial industry group said on Wednesday.

 

Investment Strategy

Business Insider: – The riskiest thing bond investors are doing right now. – The dramatic reach for yield” is a major cause for concern. And in the backdrop of a low rate environment, and interest rate risk, she says the riskiest thing people can do is have a short time horizon.

Barbara Friedberg Finance: – What to invest in if i’m in a high tax bracket. – What investment strategy should a couple use if they’re in a high tax bracket and want to minimize taxes on their investments?

ValueWalk: – The case for active bond management. – There have been instances where the passive approach to bond investing produced significant underperformance relative to a benchmark. Index funds are at a significant disadvantage to active portfolios in which managers incorporate valuation into their decision making process. The many nuances and inefficiencies of the fixed income market create both difficulties for indexing and opportunities for active management.

MarketWatch: – With bond boom ending, switch into these alternatives. – It’s been a pretty good year for bond investors, considering. Sure, yields are in the cellar, but thanks to a dip in interest rates since January, people have actually made money on bond investments. The thing is, though, bonds aren’t going to be a great investment for long.

USA News: – 4 Reasons why investors should be careful with bonds. – The case for bonds having a poor long-term forecast has only strengthened in the past year.

 

Bond Funds

Business Recorder: – Retail investors pay price as hedge funds dominate ETFs. – Junk-bond ETFs created for retail investors have been hijacked by hedge funds using them to make broad bets on bond prices, causing roller-coaster distortions in the high-yield market. Funds designed for retail investors have morphed into hedging tools that sell off too suddenly, and in too great a size, for illiquid high-yield bonds to keep up.

ETF.com: – Accessing Pimco’s alpha via ETFs. – After launching the actively managed Pimco Total Return ETF (BOND) an ETF version of Pimco’s flagship Total Return Fund (PTTRX)—in February 2012, Pimco is looking to strike it big again in ETFs.

Zacks: – 5 Top-rated government bond funds to buy. – We share with you 5 top rated government 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.

ETF.com: – About $15B flows into U.S. ETFs in August. – Investors plowed about another $15 billion into exchange-traded funds so far this month and, together with the S&P 500 Index rising to the 2000 milestone, total assets in U.S.-listed ETFs rose 3 percent to date in August to a record of more than $1.909 trillion.

 

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