This Week’s Top Bond Market Stories – June 21st Edition

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LearnBonds

LearnBonds: – Capture higher yields from crowdfunded real estate. – If the Fed’s decision to suppress interest rates for the past several years, and perhaps for years to come, is causing great harm to your income-focused portfolio, you might want to consider other opportunities.  One such opportunity is real estate.  But rather than dealing with the hassle of buying and managing properties yourself, you might consider using the relatively new real estate crowdfunding platforms available on the web.

LearnBonds: – Making sense of the markets. – Although the markets will be mainly focused on this week’s FOMC meeting (and the crazies intent on using violence and force of arms to achieve their aims), Tuesday’s economic data is much-watched by fixed income market participants.

LearnBonds: – Should you own emerging markets bonds? – In the bond world, investors can  spread risk by investing in individual bonds, bond funds, corporates, municipals, Treasuries, junk, and yes, international and emerging markets bonds. I would opine, however, that just because there is the opportunity to invest in something does not mean you should necessarily invest in it.

LearnBonds: – FOMC outlook seems consistent with moderate economic growth. – Paying attention to Ms. Yellen’s comments is like driving by looking out your windshield. Paying attention to only the FOMC statement is like driving with only your rearview and side view mirrors. Paying attention to the Fed’s “dots” is like looking ahead via radar. Our advice is to use all three tools when assessing potential future monetary policy conditions.

  To see a list of high yielding CDs go here.  

 

Municipal Bonds

Bloomberg: – Munis set for longest slide since March after debt offers mount. – The $3.7 trillion municipal market is headed for the longest losing streak since March after localities offered the most bonds in three months.

The Spectrum: – Loans from 401(k) easy, but not worth it. – If thinking about investing in municipal bonds, you may have good reason, particularly if you are in one of the higher tax brackets.

MarketWatch: – First Volcker-compliant TOB helps muni market liquidity. – The development of a tender option bond (TOB) structure that complies with the Volcker rule paves the way for tax-exempt money market funds to remain a buyer of municipal bonds.

BondBuyer: – Stiff competition led to Lebenthal’s muni banking exit. – Competition over a shrinking pool of business claimed another victim with this week’s shuttering of Lebenthal & Co.’s municipal underwriting and institutional sales arms.

Cumberland Advisors: – Muni market 2014 halftime show. – The municipal bond market continued to roar ahead in the second quarter with long tax-free yields continuing their decline in April and May before rising slightly in June. Many of the same factors that were at work in the first quarter were again at work in the second quarter.

MSN Money: – Puerto Rico public workers fight budget law, bond yields spike. – Some Puerto Rico government workers are threatening to walk off their jobs over a newly enacted budget law, adding to a recent financial whirlwind that is sending yields on the territory’s junk bonds to record highs.

 

Bond Market

CNBC: – Why low bond yields are all you deserve. – While bonds’ low spreads over Treasurys have spurred concerns investors may be paying too much for yield, some analysts say low payouts may be justified.

FT: – Bond star Michael Hasenstab warns on U.S. debt. – Ukraine’s clash with Russia, which intensified suddenly at the end of February, frightened many global investors. But for Michael Hasenstab, star global bond portfolio manager at Franklin Templeton, it was an opportunity.

WSJ: – SEC Chairman unveils plan to boost transparency in bond markets. – The nation’s top securities regulator, weeks after disclosing a sweeping plan to address issues in the stock market, is targeting a new corner of the market for reform: the bond market.

 

Treasury Bonds

Wall St Cheat Sheet: – Is the Federal Reserve sitting on a $4.3 trillion time bomb? – When the U.S economy tripped into recession after the 2007 financial crisis, the Federal Reserve responded by buying assets in the open market in order to increase the supply of money. As a result of these bond purchases, the Fed’s balance sheet has grown to $4.3 trillion, an increase of about $3 trillion since December 2007.

Bloomberg: – Treasury 2-year yields at 9-month high as Fed meeting begins. – Treasury two-year note yields reached the highest level since September as Federal Reserve officials begin a two-day policy meeting.

FT: – High yields lure foreign buyers to Treasuries. – Global investors have piled into US government bonds this year, drawn by the allure of high yields.

MarketRealsit: – Were bond prices too high at the 10-year Treasury notes auction? – The prices and consequent yields of marketable Treasury securities (Treasuries that may traded on the secondary market) are decided by competitive bids at public auctions held by the Treasury. Auctions may include first-time issues of securities as well as security reopenings. Reopenings are re-issues of securities offered previously at the same coupon and maturity date, but with a different purchase price.

MoneyNews: – Investors dump bonds as Treasury sells inflation-protected TIPS. – Treasury 30-year bonds fell the most in three months on Thursday as the department auctioned inflation-protected securities.

 

Investment Grade Bonds

Market Realist: – Why yields on investment-grade corporate bonds continued to fall. – A key statistic was the issuer preference for fixed-rate over floating rate debt—about 75.2% of total weekly debt issuance was priced as fixed-rate, compared to 24.8% as floating rate. Still, floating rate issues at $9.6 billion for the week, touched a weekly high for 2014. This implies that IG corporate issuers are looking to lock-in yields that are near record lows.

IFX: – China tops U.S. in corporate debt issuance. – China has overtaken the U.S. as the world’s largest corporate debt issuer, but a slowing Chinese economy and weakened financial conditions among its companies are causing overall corporate risk to increase globally, said Standard & Poor’s Ratings Services.

Bloomberg: – Bond traders confront inflation from vulnerable positions. – The green shoots of inflation are coming at about the worst time for corporate-bond investors. A measure of the U.S. investment-grade corporate bond market’s sensitivity to rising interest rates, known as duration, is approaching the record high reached last year before a selloff in fixed-income assets wiped $230 billion from the value of company debt, Bank of America Merrill Lynch index data show.

Income Intelligence: – Singing in the Rain: Investment grade corporate bonds have hit all the right notes. – Investment grade (IG) corporate bonds have had a stellar year. With returns running close to 5% in just the past five months, it’s a natural time for investors to ask the question, is something going to give?

Income Intelligence: – Singing in the Rain: Investment grade corporate bonds have hit all the right notes. – Investment grade (IG) corporate bonds have had a stellar year. With returns running close to 5% in just the past five months, it’s a natural time for investors to ask the question, is something going to give?

 

Junk Bonds

Forbes: – High yield bond issuance surges to $9.8B amid investor cash inflow. –  Amid investor cash inflows to the asset class the U.S. high yield bond market kicked into higher gear last week, posting nearly $10 billion in volume, more than double the amount seen the previous week and the most since the middle of May.

Income Investing: – New record low for average junk bond yield: 4.9%. – The average yield across the U.S. junk-bond market is plowing into new all-time low territory again, and it doesn’t show signs of stopping anytime soon.

Investing.com: – A technical look at junk. – Notice the tendency of junk bonds to form a significant cycle trough about every two years: March 2009, October 2011, June 2013. If this pattern holds, the next 2-year cycle trough will be due about mid-2015. The expectation of a strong move down into mid-2015 fits nicely with the Elliott Wave count as shown.

MarketWatch: – Yellen raises concerns about high-yield bonds. – Federal Reserve Chairwoman Janet Yellen raised concerns about overheating in the high-yield bond market Wednesday, even as she reiterated many of the easy-money policies currently in place.

Businessweek: – Valeant’s $12 billion junk bonds would be No. 2 offering. – Valeant Pharmaceuticals International Inc. (VRX:US)’s proposed $12 billion junk-bond offering to fund its attempted hostile takeover of Allergan Inc. would be the second-biggest on record behind billionaire Patrick Drahi’s $17 billion sale in April.

 

Emerging Markets

FT: – Too much of a good EM thing is just right. – It took exactly a year for emerging market bond investors to make back their losses from last May’s taper tantrum. After losing 12 per cent in short order when Ben Bernanke raised the prospect of ending bond buying by the US Federal Reserve he chaired, the eventual calming in long-term US rates helped bulls return to the market.

Reuters: – Low global yields, short memories propel frontier debt revival. –  Investors are returning to the riskier, less developed bond markets of Africa and other frontier economies, burying memories of past setbacks and plunging in after global yields failed to rise as much as expected.

Reuters: – Low global yields, short memories propel frontier debt revival. –  Investors are returning to the riskier, less developed bond markets of Africa and other frontier economies, burying memories of past setbacks and plunging in after global yields failed to rise as much as expected.

B2C: – Do emerging market bonds belong in your portfolio? – Most people have gotten the message they should diversify their portfolio across different asset classes. But when it comes to figuring out what that means for the bond portion of their portfolio, things get a little hazier. I suspect many people aren’t even aware that emerging market bonds are something they should consider. If you aren’t familiar with what your options are, here’s a good overview of the different types of bonds to get you started.

News on Invest: – Argentina dispute fails to deter investors. – Argentina stands on the brink of default, engaged in one of the ugliest fights ever witnessed between a country and its creditors. Yet this week’s ruling in the case dubbed the sovereign debt trial of the century has done little to spoil investor appetite for risky government debt.

 

Catastrophe Bonds

Bloomberg: – Buffett warning unheeded as catastrophe bond sales climb. – Bond buyers are betting more than ever on the mercy of Mother Nature as they seek to boost yields being suppressed by central banks.

WSJ: – Aon CATstream(TM) product expedites catastrophe bond coverage for cedants. – Aon Benfield Securities, the investment banking division of global reinsurance intermediary and capital advisor Aon Benfield, today announces the launch of CATstream(TM) — a new client facility that offers cedants faster and more efficient access to capital markets capacity for catastrophe risk.

Bloomberg TV: – Investors Tempt mother nature in disaster bonds. – Bloomberg’s Julie Hyman and Caroline Chen examine the growing interest in catastrophe bonds as debt investors bet against hurricanes and natural disasters. They speak in “On The Markets” on “In The Loop.”

 

Investment Strategy

Salt Lake Tribune: – Long-term bonds go from outcast to on-top. – It took less than six months for some of the most feared investments to get investors to reconsider.

FT: – ‘Patient capital’ waits to exploit bond market sell-off. – Asset managers hoping to profit from bouts of bond market turmoil – now big Wall Street banks have had their wings clipped – have coined an unlikely new buzz phrase: “patient capital”.

AllianceBernstein: – Multi-sector plan can help avoid the crowd in credit. – Chasing returns into—and out of—specific credit sectors happens so often in bond markets that it hardly rates a raised eyebrow. But running with the herd can be risky, which is probably why Federal Reserve officials reportedly have discussed slapping exit fees on bond funds to avoid a disorderly rush to the exit.

Chicago Tribune: – Advisers turn to alternative mutual funds on U.S. rate rise fears. –  Investment advisers, bracing for the U.S. Federal Reserve to raise interest rates, are seeking alternatives to plain-vanilla bond funds, and some are turning to mutual funds that employ hedge-fund-like tactics, including the ability to bet against securities.

CNBC: – ETFs for investors who need bond income. – A decade ago, investors were still trying to figure out how to use the first bond ETFs. Three iShares Treasury ETFs and one iShares investment-grade ETF launched in July 2002. Now there are more than 265 bond ETFs and assets exceed $275 billion.

 

Bond Funds

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.

Morningstar: – 3 New non-traditional-bond funds leap into the fray. – Janus, DoubleLine, and Goldman Sachs are among the latest to try their hand at strategies that aim to defy rising interest rates.

Zack’s: – Zacks #1 Ranked government bond mutual funds. – 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. To view the Zacks Rank and past performance of all government bond funds.

ETF Trends: – A Wonderful REIT ETF. – Relief in the form of this year’s 12% decline in 10-year Treasury has lifted real estate investment trusts (REITs) and the corresponding exchange traded funds.

Morningstar: – Handling mutual fund bloat. – An actively managed fund can become too large for managers to effectively oversee.

 

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