This Week’s Top Bond Market Stories – July 26th Edition

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LearnBonds

LearnBonds: – 5 Ways Fed policy may be hurting the economy. – Financial Lexicon looks at five reasons Fed policy may be hurting the economy and why the fed will have such a hard time fully reversing its ultra-easy monetary stance.

LearnBonds: – Retirement planning for millennials – Choosing an IRA. – A look at the different options for new investors opening an Individual Retirement Account (IRA).

LearnBonds: – P2P Investing Round Table: What is the best way to invest? – 4 experts give their opinions about the best way to invest in P2P loans.

LearnBonds: – United States Treasury securities are truly an international asset. – United States Treasury securities are truly an international asset now.  In understanding what is going on in this market for Treasury securities you have to have some idea of how funds are flowing internationally.

LearnBonds: – Chevron: Hold this “dividend aristocrat”. – Chevron, one of the largest integrated oil and gas companies in the world, has earned the title of a “Dividend Aristocrat” by increasing its dividends for 28 straight years. But as the stock price is vulnerable in the near future, I’m rating it a “hold” instead of a “buy”. First, let’s look at why I think current investors should continue to hold the stock.

  To see a list of high yielding CDs go here.  

 

Municipal Bonds

MuniNetGuide: – Muni Revenue Bonds: Lessons from Detroit and Puerto Rico. – The municipal market was able to regain some relative performance against Treasuries over the last few days, as investors were encouraged by a recovery in mutual fund flows and a rebound in Puerto Rico bond prices. Whether the recent PR rally will turn out to be just a “dead cat bounce” from oversold levels remains to be seen, however.

ValueWalk: – The municipal bond world, according to John Derrick. – Director of Research John Derrick, gives his thoughts on interest rates, the bond market and what investors should pay attention to as we move into the second quarter of 2014.

Business Insider: – The municipal bond world, according to John Derrick. – As we move into the second half of 2014, the Federal Reserve has continued to reduce its stimulus measures intended to boost the U.S. economy. Just last week we heard rumors from Fed officials that if the job market improves faster than expected, key interest rates may be increased sooner than expected.

Reuters: – Puerto Rico debt crisis headed for U.S.-style bankruptcy resolution. – Momentum is building toward a deal that would make painful losses inevitable for investors holding about $20 billion (12 billion pounds) in bonds issued by Puerto Rico’s highway, water and electricity authorities even as some big U.S. mutual funds launch a legal battle to squelch a new law that authorizes a restructuring.

Bloomberg: – Illinois outlook cut to negative by S&P on deficit concerns. – Illinois, the lowest-rated U.S. state, had its outlook dropped to negative by Standard & Poor’s, which cited the prospect of budget deficits and questions over whether pension overhaul measures will survive legal challenges.

 

Bond Market

The Economist: – The clock is ticking toward an Argentine default. – Its steakhouses bustle, its shopping malls teem. There are few signs that, on July 30th, Argentina could default for the eighth time. Yet the chances are rising.

Barron’s: – Global risk reappears, bonds benefit. – Geopolitical risk flared anew last week, and government bonds were the big beneficiaries, forestalling yet again the long-anticipated rise in Treasury yields.

Morningstar: – The temptations and dangers of higher-yielding funds. – Predictions of a much-anticipated “Great Rotation” of assets from bonds into equities have fallen flat so far in 2014. However, there has been a smaller but still important shift in the makeup of the bond-fund universe.

Morningstar: – The temptations and dangers of higher-yielding funds. – Predictions of a much-anticipated “Great Rotation” of assets from bonds into equities have fallen flat so far in 2014. However, there has been a smaller but still important shift in the makeup of the bond-fund universe.

FT: – Wall Street trades home mortgages for corporate credit. – Home mortgage lending has stagnated as banks and other lenders grapple with new rules and continued fallout from the biggest housing crash in US history. At the same time, lending to many American companies has surged, helping shift Wall Street’s once-dormant securitisation machine into gear, while the market for corporate bonds has been booming.

 

Treasury Bonds

Bloomberg: – U.S. bonds longer than 30 years would face hurdles, dealers say. – Efforts by the Treasury to sell bonds due in more than 30 years would face obstacles as the Federal Reserve begins raising interest rates from a record low, according to dealers that underwrite U.S. debt sales.

WSJ: – Why the world still loves U.S. Treasury debt. –  Last year’s taper tantrum is starting to look like a little footnote in bond market history. Yields on 10-year Treasury notes dropped below 2.5% last week. This is remarkable given the fact that U.S. job growth is heating up, inflation readings firming and the Federal Reserve has said affirmatively that it plans to stop buying U.S. and mortgage bonds by October.

Reuters: – Yield fall as Fed seen in no rush to hike rates after tame CPI. – U.S. Treasury debt yields fell on Tuesday as benign U.S. inflation data suggested less pressure for the Federal Reserve to raise interest rates sooner than expected.

About.com: – Are U.S. Treasuries a buy right now? – Fixed-income investors have undoubtedly know about the rampant predictions that the bond bull market is over, but many people still need to generate income from their investments – shaky market environment or otherwise. Since U.S. Treasuries have long been seen as one of the most reliable investments in terms of safety from credit risk, many income-oriented investors may be wondering if Treasuries are still a way to keep their principal safe.

Businessweek: – Treasuries drop as U.S. jobless claims decline to 8-year low. – Treasuries declined, with 10-year yields rising for a second day, as a report showed U.S. jobless claims unexpectedly fell to the lowest level in more than eight years, damping demand for the safest assets.

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.

 

Investment Grade Bonds

Donald van Deventer: – IBM: An updated bond market ranking. – In spite of the brand name and sterling default risk, IBM bonds rank well above the median when heavily-traded bonds are ranked by the spread to default probability ratio.

 

Junk Bonds

Stl Today: – Gallagher: Should we bail on junk bonds and small caps? – Federal Reserve Chairman Janet Yellen went to Congress last week and threw darts at little bubbles. We small investors should watch out.

Bloomberg: – Junk-bond indigestion burns buyers gorged on record sales. – Junk-bond buyers are showing signs of indigestion after snapping up a record $361 billion of the debt at the lowest yields on record.

ETF Guide: – Why the faltering junk bond market may signal deeper problems ahead. – Not many have noticed but the performance of high yield bonds (also known as “junk bonds”) are breaking down.  The decline in high yield corporate debt has been modest  (-1.5%) thus far, so it’s still flying under most radars.

MoneyBeat: – Options show rising concern over high-yield bond ETFs. – The options market is flashing concern about high-yield bond exchange-traded funds. Demand for protective “put” options in the market’s largest high-yield bond ETF versus bullish options this month crept up to its highest level since May 2013’s “taper tantrum,” when hints from the Federal Reserve on changes to its bond-buying program sent high-yield bonds, and other rate-sensitive assets, reeling.

 

Emerging Markets

Wealth Management: – What risks are worth taking in the bond markets now? – We think bond investors are not being adequately compensated for taking on interest-rate, credit or liquidity risk in the current market environment. This begs the question: What risks are worth taking in the bond markets if these traditional risks are overvalued.

Citywire: – Turnaround in Chinese corporate bonds imminent, says Invesco CIO. – Investors can expect improving returns from USD bonds issued by high grade Chinese corporate issuers over the next six months, according to Ken Hu, Invesco’s CIO of Asia Pacific fixed income.

Morningstar: – Hidden risks in emerging-markets debt? – Emerging-markets bonds, along with other higher-yielding fixed-income assets such as junk bonds and bank loans, have seen a surge in flows in recent years. Investor interest has been driven in large part by persistently low yields across the developed world.

ETF.com: – The outlook for emerging market bonds. – Where is the best place to invest? Right now, bonds issued by emerging market governments in their local currencies appear to offer far and away the most compelling investment opportunity. These bonds have four underpinnings for their exceptional risk-to-reward profile.

 

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

Business Insurance: – Catastrophe bonds are on track for a record year. – A record $4.5 billion in catastrophe bonds issued in the second quarter of this year shows the alternative risk transfer method is maturing amid strong investor demand and limited losses.

Bloomberg: – Trade of the day: Buy catastrophe. Natural disasters inflicted economic losses on the world of just $54 billion in the six months to June 30, according to insurance company Aon Plc’s Global Catastrophe Recap report. That’s about half the 10-year average of $106 billion in the period, Bloomberg’s Carolyn Bandel reported today.

 

Investment Strategy

ETF.com: – Investors pile into bond ETFs for week. – Investors added $1.8 billion to the ETF market in the past week ended Thursday, July 17, but tensions between Israel and Palestine and the downing of a commercial airliner in Ukraine yanked stock prices lower, pulling U.S.-listed ETF assets downward too.

Reuters: – Will you get burned by following the hot money in ETFs? – All too often, I see investors heading in the wrong direction en masse. They buy stocks at the top of the market or bonds when interest rates are heading up.

Humble Student: – A better measure of bond market sentiment. – As good bond investors know, price performance of a bond portfolio comes from principally two factors.

Focus on Funds: – High yield spreads ‘not worth it,’ cut ETFs: Ned Davis. – Ned Davis Research ETF strategists are advising clients to cut back holdings in the most popular junk-bond ETFs.

Forbes: – Want to invest like Bill Gross? Buy mortgages. – Bond king Bill Gross has been on a bit of a buying binge, sinking more than $90 million of his own money into four of his asset management company’s funds since April in an iconoclastic bet that ultra-low interest rates are here to stay and that mortgages are a hot asset.

The Street: – Bond investing strategy shields against rising interest rates. – For an investor, the question of how long rates remain at today’s lows isn’t insignificant. Believing that there will be no change for a year or two prompts an investor to take more risk, perhaps lengthening bond maturities a bit to capture more yield while not, just yet, subjecting principal to rate risk. But if one thinks rates will rise, then by all means keeping maturities short is the thing to do.

 

Bond Funds

Barron’s: – Searching for bargains in closed-end funds. – Closed-end bond funds have been on a tear this year, returning an average of 11% during the first half, including dividends, according to Closed-End Fund Advisors, a research group. The average yield at the end of June was 6.4%. Compare that with a first-half total return of just 5.4% for SPDR Barclays High Yield Bond (ticker: JNK), an exchange-traded fund that tracks junk bonds.

Forbes: – Best ETFs for traders: Inflation-protected bonds. – Do you want to speculate on where real interest rates will go? You could buy one of the cost-efficient exchange-traded bond funds in the table below. If rates on Treasury Inflation Protected Securities (a.k.a. TIPS) go down, you’d make a quick buck.

WSJ: – SEC Approves tighter money fund rules. – U.S. securities regulators on Wednesday took a long-awaited step to reduce risk in the $2.6 trillion money-market mutual-fund industry, completing rules intended to prevent a repeat of an investor stampede out of the funds during the 2008 financial crisis.

ETF.com: – Emerging market and high yield on the rise. – Investors are piling into exchange traded funds (ETFs) that track high yield bonds and emerging market assets on the back of positive performance so far this year, despite the Bank of England’s continued concerns on concentration and liquidity risk.

 

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