Treasuries Boosted By Euro Bond Rally and Today’s Other Top Stories

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Today is an important day for bond investors, it being the first Friday of the month and therefore time for the monthly jobs report. This months report comes at a critical time for the Treasury market, which so far this year has defied predictions and rallied as the economic recovery stalled.

This mornings jobs report was largely positive, with the Labor Department announcing that the U.S. economy added 217,000 nonfarm jobs in May, just ahead of the 210,000 forecast by economists.

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Ordinarily this should have been enough to send bond yields higher and prices lower. Since jobs are so important to the economic outlook, investors take a positive report as a sign that growth is on track.

But following the release, Treasury yields fell back and prices began to strengthen as Government bonds in the euro zone rallied for a second day following Thursday’s ECB announcement of a new package of stimulus for the economy.

The increased liquidity sent bond yields in Germany, the euro zone’s benchmark, further below those of U.S. Treasurys, therefore increasing the allure of U.S. bonds for relative value.

“European government bonds are rallying big time and that is benefiting Treasury prices,” said Tom di Galoma, head of fixed-income rates in New York at ED & F Man Capital Markets. “U.S. jobs data was spot on the estimates, so no big surprise there.”

At the close of today’s session, the 10-year note was priced 5/32 higher, yielding 2.564%, according to Tradeweb. The yield was 2.586% just before the jobs data was published.

 

Todays Other Top Stories

Municipal Bonds

Bloomberg: – Road to disney world lures vanguard as debt yields sink. – A central Florida county is building a toll road through swampland near Walt Disney World to speed the commutes of local workers, financing the project by selling low-rated debt to yield-hungry investors.

Orange County Breeze: – Watch for different risk level of muni bonds. – Are you thinking of investing in municipal bonds? If so, you may have good reason, particularly if you are in one of the higher tax brackets. After all, municipal bond interest payments typically are exempt from federal income taxes, and possibly state and local income taxes, too — although some “munis” are subject to the alternative minimum tax.

Reuters: – Households pull back more from U.S. municipal market -Fed. – Households backed away from U.S. municipal bonds at the fastest pace in more than a year in the first quarter, shunning a big rally in the largely tax-free asset and leaving them holding the smallest slice of the market in at least a decade.

Financial Advisor: – Clients looking for tax-free muni income may pay more for it. – The U.S. municipal-bond market is performing a vanishing act. While businesses and consumers are borrowing more as the economy revives and the Federal Reserve holds its benchmark interest rate near zero, America’s local governments are doing the opposite. States, cities and public agencies have reduced their debt load by $111 billion since 2010, the biggest decline peak to trough since records began in 1945, according to Fed data released yesterday.

 

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.”

Reuters: – Pair of U.S. senators urges disclosure on bond markups. – Municipal and corporate bond dealers would have to tell investors how much they charge to cover their compensation under bipartisan legislation currently in the U.S. Senate to end secret price markups.

DealBook: – Bond rally is squeezing the trading at big banks. – Wall Street’s biggest firms this year made an extraordinary wager that they probably now regret.

 

Treasury Bonds

Reuters: – U.S. gov’t bonds seen as a bargain after ECB rate cut. – Do not be surprised if U.S. Treasury yields fall in coming days after the European Central Bank cut short-term interest rates to near zero on Thursday.

 

Investment Grade Bonds

Businessweek: – Verizon leads jump in bond sales with summer lull looming. – So much for the unofficial start of summer. Corporate-bond sales in the U.S. since the Memorial Day holiday are off to the fastest pace in five years as companies from Verizon Communications Inc. to Baytex Energy Corp. lead more than $48 billion of issuance.

 

High Yield Bonds

Forbes: – Retail-cash inflows to high yield bond funds contract, inflow solely from ETFs. – Retail-cash inflows for high-yield funds totaled $302 million in the week ended June 4, according to Lipper. While positive for a fifth consecutive week, it’s notable that the infusion came solely from exchange-traded funds, with a technically $26 million mutual fund outflow blown out by an inflow of $327 million to the ETF segment.

KSPR: – Bond investors chase yield in scary places. – Persistently low interest rates in the United States are forcing bond investors to don their hunting caps and scour the globe for higher yields.

Citywire: – High yield: last roll of the dice. – Investors have flocked to high yield bonds in recent years in the scramble for fixed income returns in a low interest environment, but are we now at the beginning of the end of the boom?

Businessweek: – Morgan Stanley sees high-yield funds adding riskier debt. – Mutual funds focusing on speculative-grade bonds and loans are adding riskier debt as they search for higher yields, according to a Morgan Stanley report today.

 

Emerging Markets

Bloomberg: – Emerging-market local debt cheapest since 2008. – As bond investors have returned to emerging markets in recent months, they’ve focused their buying on foreign debt and balked at purchasing local notes. That’s about to change, according to Standard Life Investments, the money-management arm of Scotland’s biggest insurer.

Businessweek: – Barclays says get rid of your top emerging-market bonds. – Barclays Plc says it’s time to change things up in your emerging-market bond portfolio.

Reuters: – Investors pile into emerging bonds -banks citing EPFR. – Investors pumped money into emerging market debt last week but withdrew it from emerging stocks, banks said on Friday, citing data from EPFR Global.

 

Investment Strategy

LearnBonds: – Dow Dividends – is AT&T stock worth the price? – AT&T pays a 5.2% dividend, but is the stock a buy and hold for retirees? Lawrence Myers takes a closer look.

The Experts: – Two factors to ignore when picking a fund. – There are some things about investing that should not be a focus of your attention. Two of them are 1) past performance and 2) flows of money into stock and bond funds.

MarketWatch: – 6 bond-fund building blocks for retirement savers. – This article is aimed at retirees and retirement planners who are already committed to owning bonds funds in their retirement portfolio, and outlines a simple strategy for designing a diversified portfolio of U.S. and international bond funds.

ValueWalk: – Irrepressible Bonds: Positioning and Fed expectations. – The march higher in bonds took a bold step forward last week as the 10-year Treasury yield dropped below 2.5% briefly, the low end of a multi-month yield range. Bond strength came amid little to no news, making the most recent run-up in bond prices peculiar but similar to other bouts of strength over the past two months.

Stock Traders Daily: – Bonds reflect serious macroeconomic risks. – Over the past few weeks, the bond market has taken off, and oddly, the stock market has too. Usually, the bond market rallies when the stock market comes under pressure, because the bond market is where investors flock when they perceive risk, but that did not happen recently. This has some theorists in a conundrum, but it presents excellent trading opportunities too.

 

Bond Funds

Morningstar: – Investors back bond ETFs. – Unlike active investors, ETF traders are demanding fixed income assets. Why is there a divergence between active and passive investment?

Reuters: – Bond funds worldwide attract $4.3 bln inflows over week. –  Fund investors worldwide poured $4.3 billion into bond funds in the week ended June 4, marking their 13th straight week of inflows, data from a Bank of America Merrill Lynch Global Research report showed on Friday.

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