This Week’s Top Bond Market Stories – July 19th Edition

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LearnBonds

LearnBonds: – Moody’s issues bonds yielding over 5%. – Moody’s is the type of company deserves exposure in your corporate bond portfolio. So you might be interested to learn that Moody’s recently raised $750 million in the form of two new debt securities.

LearnBonds: – Detroit public workers vote on $7.4 billion in cuts. – Last Friday, Detroit’s public workers, retirees and bondholders finished voting on a plan which would impose $7.4 billion in cuts on investors and pensioners. The plan, if approved, would result in current and former city employees, as well as investors, to take less than the $10.4 billion they are owed if U.S.

LearnBonds: – Are bonds riskier than stocks? – Investors are fearful that buying a bond today won’t be as lucrative as buying a bond a year from now. For these two reasons, many investors view bonds with much skepticism, as risky, or even as being in a “bubble.” I generally understand the skepticism – but bond risk can be mitigated by purchasing issues that minimize the potential forward pitfalls.

LearnBonds: – The importance of Treasury inflation protected securities (TIPS). – In several of the posts I have written for LearnBonds in the past I have discussed the importance of Treasury Inflation Protected Securities or TIPS in trying to interpret what the bond markets are trying to tell us. I have focused primarily on the 10-year TIPS because it is a longer-term maturity and is closely watched by many people that closely follow the financial markets.

LearnBonds: – General Electric: Buy this transformed industrial giant. – Are GE’s glory days back? Well, maybe not, but under the 13-year leadership of CEO Jeff Immelt – who succeeded the legendary Jack Welch – the company’s business portfolio has been reshaped, guided by a philosophy that stresses innovation, globalization and growth over broad diversification and process orthodoxy.

  To see a list of high yielding CDs go here.  

 

Municipal Bonds

Daily News: – Municipal bonds can be very attractive for those in a tax bracket of at least 20%. – Money Manager Lewis Altfest advises an 85-year-old-widow on where to put her extra cash.

Cate Long: – Why it is so expensive to trade muni bonds? – Why is it so expensive to trade municipal bonds? We finally have some answers from a long awaited MSRB report on trading in the opaque muni bond market.

S&P Capital IQ: – Largest withdrawal in 11 months: Retail-cash outflows from high yield bond funds balloon. – Retail-cash outflows from high-yield funds totaled $1.68 billion in the week ended July 16, with an outflow of $613 million from mutual funds expanded upon by an outflow of $1.1 billion from exchange-traded funds, according to Lipper. The ETF influence was roughly 63% of the total withdrawal.

Income Investing: – Puerto Rico woes weigh on muni market as funds see outflows. – Municipal bond mutual funds and ETFs posted a $790 million net outflow in the week ended Wednesday, per Lipper data, halting a nine-week streak of net inflows. Chris Mauro, head of US municipals strategy at RBC Capital Markets, says negative headlines out of Puerto Rico seem to have finally taken a toll on investors.

Barron’s: – Janney ‘increasingly skeptical’ of S&P’s muni ratings. – Janney Montgomery Scott published a note today warning investors about grade inflation in Standard & Poor’s rating methodology for municipal bonds. Janney takes issue with what it sees as an acceleration of S&P upgrades compared with its main rival, Moody’s Investors Service.

Reuters: – Without a net: Oppenheimer has $4 billion in uninsured Puerto Rico debt. – OppenheimerFunds’ municipal bond portfolios hold $4 billion in uninsured Puerto Rico debt, leaving them open to bigger potential losses than rivals as the Caribbean island’s fiscal problems escalate.

Bloomberg: – Bond fee disclosures sought by SEC to end 38-year debate. – After a 38-year debate on how to make trading costs for corporate and municipal debt transparent, regulators are making another attempt at forcing dealers to disclose how much they earn on the transactions.

 

Bond Market

Income Investing: – Bank bonds, preferreds should benefit from rising rates – Barclays. – Barclays sees rates rising in the second half of 2014, which should dent corporate bonds but could set up bank bonds and preferred shares as longer-term beneficiaries. Barclays rate strategists forecast the 10-year Treasury yield to rise to 3.15% by yearend from 2.55% today, and see an even steeper 75 bps selloff for the front end of the yield curve.

FT Adviser: – Fears grow of future bond crisis. – Bond managers have voiced fresh fears about buying behaviour in fixed income markets, claiming it could be “sowing [the] seeds for a future crisis”.

Bloomberg: – In bond market musical chairs, be ready for bids halting. – Wall Street’s largest bond dealers cut their net junk-bond holdings to $4.8 billion in the week ended July 9, the lowest level since the Federal Reserve began reporting the data in April 2013. While credit still shows signs of froth — with new funds to buy junk-rated loans popping up left and right — investors are increasingly anxious about when the market will turn.

 

Treasury Bonds

WSJ: – U.S. Government bonds pull back before Yellen’s testimony. – Treasury bonds pulled back Monday after the biggest weekly rally in four months as demand for safe assets eased.

Investing.com: – U.S. 10-year Treasury note speculators’ bearish bets rose for second week. – Large Speculators’ net bearish positions rise to highest level since May 20th at -96,772 contracts.

WSJ: – Treasury bonds pull back as Yellen sparks price swing. – Treasury bonds pulled back as comments from Federal Reserve Chairwoman Janet Yellen raised some anxiety about higher interest rates.

Market Realist: – Why was indirect bidder demand for 30-year bonds higher? – Demand for the July 30-year bonds auction was in-line with averages seen in 2014. The bid-to-cover ratio for the July auction came in at 2.40x—down from 2.69x recorded in June’s auction. The offer amounts for both auctions were the same at $13 billion. The ratio has averaged ~2.40x in auctions held in 2014.

WSJ: – China plays a big role as U.S. Treasury yields fall. – Investors wrestling with the mysterious U.S. bond rally of 2014 got a clue about where to look: China.

Reuters: – Weak housing data spurs more buying of U.S. Treasuries. – U.S. Treasuries rose on Thursday after disappointing U.S. housing data showed the slowest pace of groundbreaking in nearly a year, driving yields lower and reinforcing a view that U.S. monetary policy will remain loose well into 2015.

Bloomberg: – Treasuries fall first time in 3 days as Ukraine tension eases. – Treasuries fell for the first time in three days, with benchmark 10-year yields rising from a seven-week low, as haven demand ebbed a day after a Malaysian airliner was shot down over Ukraine.

 

Investment Grade Bonds

Donald van Deventer: – Yum Brands and Goldman Sachs lead best value bond trades with 1-5 year maturities. – We rank the 20 “best value” trades by the ratio of credit spread to default probability.

Donald van Deventer: – The Walt Disney Company bonds: Very low default risk at a ‘no brand’ price. – Most “brand name” company bonds we have reviewed to date do not offer “good value” as measured by the ratio of credit spread to default probability. The Walt Disney Company is an exception.

Donald van Deventer: – Transocean Ltd. bonds: High risk, low return. Transocean Ltd. default probabilities have dropped in the last six months, but the firm still has a 9.00% probability of default within 10 years.

FT: – Bank bonds gain edge on stocks as risk factor fades. – Customers are renowned for being loyal to their bank. For investors the divergence in equity and bond performance for the US banking sector this year shows how sticking with one asset class can cost them.

 

Junk Bonds

Financial Advisor: – Investors, seeing little alternative, pile into junk bonds. – Investors are piling into junk debt this year partly because they can’t find enough higher-quality bonds for sale.

Reuters: – High-yield drives biggest U.S. muni fund outflows since January. – Investors pulled $790.3 million out of U.S. municipal bond funds – most of it in the high-yield sector – in the week ended July 9, marking the biggest outflows since January, according to data released by Lipper on Thursday.

Citywire: – Global HY: five standout managers revealed. – Citywire Global shines a light on the best-performing global HY fund managers over the past three years.

Businessweek: – Wall Street wins (or doesn’t lose much) on junk trading. – A few things went right last month for Wall Street’s beleaguered bond dealers, helping to prop up otherwise sagging trading revenue. But that doesn’t mean they’ve reclaimed Masters of the Universe status just yet.

Bloomberg: – Top junk loser undone by equipment costs. – Creditors are losing confidence in 21st Century Oncology Holdings Inc. (ICC), driving its bonds to the deepest loss among junk-bond issuers in the U.S. this month as the government considers reducing payments to cancer centers.

IFR: – Losses, outflows dog U.S. high-yield bond market. – The US high-yield bond market saw one of its most volatile days of the year Thursday, as the CDX index dropped almost a point on news of the Malaysian airliner brought down over Ukraine.

 

Emerging Markets

Charles Stanley: – Emerging market debt funds – the basics. – With interest rates so low, many investors are exploring new territory in their search for income. One such frontier is emerging market debt funds. These offer enticing yields in the region of 5%, but as demonstrated earlier this year they can also come with high volatility. So, what are the opportunities in this area of investment, and is the income on offer worth the risk?

Bill Greiner: – Emerging market bonds: Are yields high enough? – It is the wise investor who looks not only at markets offering opportunity but also at markets at risk. There is no sure-fire way of identifying markets that may be at pricing risk. I have usually observed variables that tend to indicate, based on historical relationships, markets that may be offering opportunities for outsized returns, as well as markets that may be at risk.

CNBC: – Why the EM bond rally is different this time. – Shrinking spreads between emerging market bond yields and U.S. Treasurys’ may have spurred bubble fears, but some analysts don’t see any reason for alarm.

 

Real Estate Investment Trusts

Trustnet: – Are property funds really an alternative to bonds for income investors? A growing number of investors are turning to direct commercial property funds as an alternative to traditional fixed income portfolios, but is the asset class a like-for-like replacement?

Motley Fool: – 1 reason New York mortgage trust is a better high-yield than annaly capital. – New York Mortgage Trust has done shareholders a great service by shifting a larger percentage of its capital into commercial mortgage-backed securities and distressed residential loans in 2012 and 2013. This ultimately allowed the company to emerge from the 2013 mortgage REIT meltdown pretty much unharmed.

 

Catastrophe Bonds

Thomson Reuters: – Caribbean looks to new insurance to cushion blow of natural disasters. –  Natural disaster-prone Caribbean countries can soften the economic impact of earthquakes and hurricanes with new disaster insurance coverage in the form of a catastrophe bond, according to the Caribbean Catastrophe Risk Insurance Facility (CCRIF).

 

Investment Strategy

WSJ: – Five popular—but dangerous—Investments for individuals. – Mutual funds that try to emulate hedge funds. Exchange-traded funds that use borrowed money to jack up their bets. Real-estate investment trusts that are hard to unload. Structured notes that look like conventional debt but can be far more risky, and “go anywhere” bond funds that are prone to trade safety for yield.

ETF.com: – High yield corp vs. bank loans ETFs. – When it comes to capturing yield in the corporate debt space, ETF investors are showing a preference this year for senior bank loans over high-yield corporate bonds. That preference, some argue, is largely due to what looks like an overvalued junk corporate bond segment, but it is a choice that has its trade-offs.

The Economist: – The $15 trillion question. Many retired people don’t have proper pensions any more. The financial-services industry may end up cashing in.

Business Recorder: – Foreigners buy $19 billion in U.S. long-term securities. – Foreigners bought more than $19 billion in US long-term securities in May, including Treasuries and corporate bonds, after selling debt in April, the US Treasury Department said on Wednesday. Including short-term debt and banking inflows overseas investors purchased $35.5 billion of US securities, of which $22.4 billion was acquired by foreign official institutions.

Nanette Abuhoff Jacobson: – Avoid the rearview mirror. – Despite this, most asset classes managed to deliver positive returns, with European and emerging-market equities performing especially well. Investors should stay focused on the road ahead rather than what’s already passed.

 

Bond Funds

Barron’s: – Fundamental bond ETFs prove tough to tackle. – Fundamental indexing is an attempt to outsmart the market by adding ever-more criteria to create a market-beating index, or manage risk, or both. Sometimes, the effort pays off, which explains why fundamental stock ETFs have won many investors.

Columbus CEO: – Jockeying for position in the bond-fund sweepstakes. –  As he came to early prominence in the 1980s, Bill Gross was sometimes called the Peter Lynch of bonds, after the better-known manager of the Fidelity Magellan stock mutual fund.

Financial Advisor: – Mutual fund costs decrease for retirement plan. – The cost of long-term mutual funds continues to decrease for participants in 401(k) plans, according to a study by the Investment Company Institute released Monday.

ETF.com: – Don’t assume U.S. bond ETFs are U.S. focused. – How much international exposure should you have in your portfolio? Most of the time the person who asks this question is referring to their stock allocation. But what about other parts of the allocation?

Businessweek: – Gundlach’s Total Return loses analyst rating in dispute. – Jeffrey Gundlach’s Total Return Bond Fund at DoubleLine Capital LP has lost its analyst rating from Morningstar Inc. after a long-running dispute over the research firm’s coverage of the money manager.

Fox Business: – Bond mutual funds draw more dollars this year despite warning calls from analysts. – Investors are continuing to pour money into bond mutual funds despite the warnings from Wall Street. So far, those investors have looked smart for doing so. Bond funds have delivered solid returns despite dour predictions.

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