This Week’s Top Bond Market Stories – June 14th Edition

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LearnBonds

LearnBonds: – Three must-buy high dividend stocks. – There are rare occasions when what tastes good is actual good for you. The thing is, they’re not easy to find, and you have to know what you’re looking at. I spend a good amount of my time hunting for these treats, and I want to bring to your attention three choice morsels I’ve found with high but sustainable yields.

LearnBonds: A High-yielding alternative in a low-yielding world. This high-yield bond fund, which recently surpassed $1 billion in assets under management, focuses on single-B and triple-C rated corporates, with slightly more than half its assets currently in B and B-minus rated bonds.

LearnBonds: – Dow Dividends – Is American Express worth the price? – Lawrence Meyers takes a closer look American Express (AXP), the financial services company that does a lot more than just issue charge cards.

LearnBonds: – For High-Yields – Should I invest in stocks or bonds? – While there’s no rock hard definition for the term, it seems in today’s interest rate world that any security sitting above 5% is considered “high-yield.” It’s funny when you think about it – considering where interest rates stood during Ronald Reagan’s presidency some 30 years ago.

LearnBonds: – Junk bond credit spreads reach their lowest levels since financial crisis. – When we see investors scramble to take subordinate positions in already risky assets, we cannot help but to become concerned that junk debt is overvalued.

  To see a list of high yielding CDs go here.  

Municipal Bonds

Bernardi Securities: – The “Illinois effect” on local municipal bonds. – The State of Illinois’ fiscal problems are well known. The State receives widespread media coverage from having the lowest bond rating of any state in the country. Does this imply that all bonds issued by local governments within Illinois are poor credits? Not necessarily so, in our view.

Narwhal Capital: – Muni bond inventory is scarce. – We’ve always had an affinity for municipal bonds.  For clients with any tax sensitivity, a tax-free, income-producing investment vehicle makes an awful lot of sense—especially if we can appropriately determine the risk associated with the issue.

Businessweek: – Chicago pension rescue targets $9.4 billion deficit. – Chicago moved forward in its effort to rescue a pair of pension funds and stabilize its finances when Illinois Governor Pat Quinn signed a bill that cuts benefits and makes employees pay more for retirement.

Reuters: – New York City gets low yields in first bond sale since union deals. – A scarcity of new paper in the U.S. municipal bond market helped New York City borrow more at lower rates on Wednesday, in its first bond deal since Mayor Bill de Blasio’s multibillion-dollar accord with labor unions in May.

Bond Buyer: – Muted supply puts strain on reinvestment season. – With municipal bond supply down by nearly a quarter from last year, investors have been coming up short as they try to roll over the proceeds from June 1 and July 1 called and maturing bonds, municipal managers and strategists said.

 

Bond Market

Bloomberg TV: – Bond dealers fight for bond sales assignments. – Bloomberg’s Lisa Abramowicz reports on bond underwriting and U.S. corporate bond sales on Bloomberg Television’s “Bottom Line.”

Veooz: – Who owns the U.S. bond market? – U.S. corporate bond market ownership across investor types.

Trustnet: – Market worries will put emphasis back on absolute return funds, says Uys. – As well as focusing on cumulative performance, investors need to focus on how absolute return funds have performed when they’ve needed them the most.

Investors.com: – Performance rotation among global fixed income sectors. – From 2009 through the middle of 2013, fixed income investing turned out to be fairly straightforward. The more credit risk and interest rate risk investors assumed in their portfolio, the higher their returns. In the second half of last year, interest rates rose and emerging markets fell out of favor. So far in 2014, falling interest rates have boosted longer-maturity bonds.

 

Treasury Bonds

ETF.com: – 5 main factors driving Treasury yields. – The bond market hasn’t exactly behaved like most people would have thought coming into 2014. Contrary to expectations for higher rates as the Fed tapers its monthly bond purchases, investors have instead been faced with dropping Treasury yields, now flirting with multi-month lows.

WSJ: – Companies choose more Treasurys, less everything else. – The proportion of corporate cash allocated to Treasury  bonds grew last month as every other asset type’s share declined. Treasury bonds made up 26.6% of corporate cash as June began, compared with 24.8% a month before, according to data from Clearwater Analytics.

Barry Ritholtz: – It’s a low rate world: Ritholtz chart. – Astonishingly, the U.S. has the 16th lowest yield. The 10-year U.S. Treasury bond yields a little more than Norway and a little less than Spain. I am not sure exactly what this means, but it seems worthy of further analysis.

Bloomberg: – U.S.’s $21 billion notes sale undermines budding rally. – Foreign investors showed the least demand for Treasury 10-year notes at a U.S. auction of the debt in 13 months, suggesting that the biggest bond-market rally in three years risks running out of steam.

 

Investment Grade Bonds

Investing.com: – Worsening risk/reward fundamentals in U.S. corporate credit. – US corporate credit markets, particularly high yield bonds, are becoming quite frothy, as risk/reward dynamics continue to worsen. Here are some key indicators.

Donald van Deventer: – Oracle Corporation bonds: Too much good news from the bond Market. – Oracle credit spreads are also low relative to sector peers and investment grade peers which traded heavily on June 6. Because of these facts and the Oracle brand, Oracle bonds have been bid up so high that the reward to risk ratio ranks below 195 other bonds on June 6.

FT: – Investors lap up ultra-long corporate bonds. – Global sales of corporate bonds maturing in 50 years have jumped to record levels this year as investors are flocking to the securities, lured by the higher yields offered by the debt.

Donald van Deventer: – Bank Of America Corporation: Default probabilities and relative value update. – Bank of America default probabilities have increased significantly since our March 7, 2014 report. Credit spreads are average and default probabilities are above average compared to banking peers and investment grade peers, giving below average credit spread to default probability ratios.

 

Junk Bonds

Against Crony Capitalism: – Jim Grant warns about junk bonds. – In the interview with Forbes publisher Steve Forbes, Jim Grant refers to the mess the Fed is making and specifically warns about distortions in the price of junk bonds, the low rated corporate bonds that income starved investors are always tempted to buy.

Citywire: – Investec’s Stopford reduces ‘vulnerable’ high yield bonds. – Investec Asset Management’s John Stopford is cutting his exposure to high yield bonds over fears the market is illiquid and fully priced.

Income Investing: – Junk bond default rate steady At 2.1% in May – Moody’s. – Junk-rated corporate bonds don’t yield much these days, but they don’t default much either. Moody’s just reported that the U.S. high-yield default rate held steady at just 2.1% in May, while the global rate fell to 2.3% in May from 2.5% in April. Things look pretty good for the year ahead too, according to Moody’s.

Investopedia: – Will the high times in high yield continue? – With interest rates still in the basement and Treasury bonds yielding next to nothing, investors have been forced to look outside the box in order to find income. For those wanting to stay within bonds, that means loading up on junk bonds and funds like the SPDR Barclays High Yield Bond ETF.

S&P Capital IQ: – High yield bond funds see $277M cash inflow despite ETFs. – Retail-cash inflows for high-yield funds totaled $277 million in the week ended June 11, according to Lipper. The figure represents an inflow of $437 million to mutual funds that was dented by a $160 million withdrawal from the exchange-traded-fund segment.

 

Emerging Markets

IO&C: – Why you shouldn’t give up on emerging markets. – There are still opportunities in both emerging market debt and emerging market equities according to portfolio managers at global fund manager Neuberger Berman.

Citywire: – China and the Fed biggest risks to frontier markets. – A Chinese growth slowdown and US monetary policy are the biggest risk factors for frontier markets, according to ING IM’s Marco Ruijer.

Money Marketing: – Emerging markets return to favour with European investors. – Investors across Europe channelled money in emerging market funds during April in signs that the unloved asset class is coming back into favour.

Money Marketing: – Emerging markets return to favour with European investors. – Investors across Europe channelled money in emerging market funds during April in signs that the unloved asset class is coming back into favour.

 

Catastrophe Bonds

Pensions and Investments: – Pension funds eye illiquid catastrophe bonds. – Significant demand for insurance-linked securities, in particular catastrophe bonds, has driven down yields and taken some of the luster off the once-shining beacons of uncorrelated assets in a pension fund’s investment portfolio.

Pensions and Investments: – Pension funds eye illiquid catastrophe bonds. – Significant demand for insurance-linked securities, in particular catastrophe bonds, has driven down yields and taken some of the luster off the once-shining beacons of uncorrelated assets in a pension fund’s investment portfolio.

Business Insider: – Investors are betting a meteor won’t destroy America. – The search for yield has taken investors into the nether regions of the solar system. Last month, according to Artemis, a group that tracks catastrophe bonds, insurer USAA took out a policy against the risk it would have to pay out for tropical cyclones, earthquakes, severe thunderstorms, winter storms, wildfire, volcanic eruption and meteorite impact.

 

Investment Strategy

AllianceBernstein: – We’re staying the course in bonds with intermediate-duration portfolios and higher yielding bonds. – Going forward, we expect to see healthy economic growth—one of many catalysts for the resurgence of corporate mergers and acquisitions. Our positive outlook is leading us to maintain a cyclical tilt in stocks, which are overweight in our accounts with Dynamic Asset Allocation.

ETF Trends: – Stock, bond ETF investors should go global. – With the proliferation of exchange traded fund options available, financial advisors and investors can easily access global markets to diversify their portfolios.

Bloomberg: – Gross raises government-related debt to 50% of flagship fund. – Pacific Investment Management Co.’s Bill Gross raised his holdings of Treasuries and government-related debt in May to half his flagship fund’s total as the securities gained the most in four months.

Professional Adviser: – Where did all the smart money go in May? – Investors continued to direct their cash towards emerging markets in May. These new flows could partly be attributed to the paucity of opportunities available among developed market assets, but also to a diminution in the situation in Ukraine. Flows were seen into emerging market bond and equity funds, with investors even returning tentatively to local currency bond funds.

Kiplinger: – The four best bond funds to own now. – Bond yields have nowhere to go but up, and that means bond prices will fall. These funds take unconventional approaches to avoiding losses and boosting returns.

 

Bond Funds

Focus on Funds: – Fund flows: What’s hot, not. – Emerging market debt funds attracted $2.2 billion in investments in the latest week, the largest figure since January 2013. While that marks the 10th week of inflows as investors search for yield, it’s a drop compared to the 10-month, $76 billion emerging-market selloff that began in May.

ETF Trends: – Alluring bond ETFs. – Fixed income exchange traded funds are not the biggest slice of the exchange traded funds universe, but even with U.S. equities solid through much of 2014, bond funds have been prolific asset gatherers.

Wealth Management: – Bargains in closed-end funds? – During the past year, many closed-end bond funds sank as investors sold off, worried about rising interest rates.  According to Thomas J. Herzfeld Advisors, the average closed-end bond fund now sells at a 6% discount to the value of its assets. In other words, you can buy $1 worth of bonds for 94 cents. That should tempt bottom fishers.

Financial Post: – Bond ETFs surge in size and risk as institutions pile in. – Institutional investors having trouble finding bonds for their portfolios from the usual suppliers are accepting a higher degree of risk and pumping billions of dollars into exchange-traded bond funds, boosting asset management firms such as BlackRock, Pimco and State Street.

Reuters: – Bond ETFs swell in size and risk as institutions pile in. – Institutional investors having trouble finding bonds for their portfolios from the usual suppliers are accepting a higher degree of risk and pumping billions of dollars into exchange-traded bond funds, boosting asset management firms such as BlackRock, Pimco and State Street.

 

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