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

 

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LearnBonds

LearnBonds: – Has the bond market got it wrong. – For several weeks, media pundits and equity market participants questioned the bond market’s outlook on the economy. Some market participants went as far as to say that the bond market “had it wrong.” This is something with which we vehemently disagreed.

LearnBonds: – Here’s where to find real yields today. – Finding yield in today’s market is difficult, but not impossible. Financial Lexicon tells you where you should be looking.

LearnBonds: – Want to reduce your tax bill? Consider municipals. – With our annual settlement with the IRS having come and gone, you may be breathing a sigh of relief for the first time in a few weeks. However, if line 61 (total tax) on your 1040 was a bit more than you anticipated this year, now’s probably as good a time as any to be thinking strategically about your investment assets and next year’s tax bill.

LearnBonds: – Three dividend paying stocks you should own and never sell. – There are some companies so fundamental to the way the global economy functions, and so well run, they’re likely to flourish and reward investors from here to the next geological era. Warren Buffett calls dividend paying stocks “forever stocks,” but to clarify: I think you can buy shares of these companies and not lose a night’s sleep for the next 30 to 60 years.

LearnBonds: – Economic and demographic trends pointing to more modest economic growth. – Current global economic and demographic trends are pointing to more modest economic growth than what has prevailed in recent decades. For decades, central bankers have combatted demographic changes (slowing birth rates, aging populations, etc.) by easing monetary policy. However, with policy rates near zero in the U.S., EU and Japan, central bankers are low on ammunition. Our suggestion for central bankers is to stop fighting.

 

Municipal Bonds

Bernardi Securities: – Detroit settles with UTGO creditors – BOND is right side up! Still “waiting for Godot”. – Last week’s agreement, if approved by Judge Rhodes, is a significant positive step for Detroit and moves the city in the direction we suggested months ago. We are heartened by Mr. Orr’s about face and believe it is exceptionally important to Detroit’s future. His motivations for changing his position are unknown to us and we give him great credit for doing so. In this article, we offer our conjecture as to why he agreed to quintuple his offer to UTGO creditors.

ETF.com: – Kotok on muni outperformance. – David Kotok recently sat down with ETF.com to give us the latest on municipal bonds and where he sees opportunities in the muni market roughly nine months after Detroit’s bankruptcy. He also discusses the importance of being selective in emerging markets investing, and reveals his favorite sector plays at the moment.

Reuters: – Puerto Rico bond crisis leaves boxing champ Trinidad ruined. – Boxer Felix “Tito” Trinidad, who grossed nearly $90 million during his championship career in the ring, is in economic ruin, just like his native Puerto Rico, according to court documents.

ETF Trends: – Municipal bond ETF rally still has legs. –  Municipal bond exchange traded funds are moving in their best rally in five years, with yields near the lowest since June, and there may be more room to run.

Fox News: – Puerto Rico’s new bonds plummet to a record closing low. – In more dismal news for the United States territory, the price of Puerto Rico’s newest bonds once again fell, notching its lowest session-ending price since their debut a month ago.

IFR: – Florida East Coast Holdings leads US high-yield supply on quiet day. – A dual-tranche bond for Florida East Coast Holdings Corp was the only deal to price Tuesday in an otherwise quiet day for primary activity in the US high-yield bond market.

Bloomberg: – Visual guide to municipal bonds from Bloomberg. – Download this visual guide to the municipal bond market from Robert Doty at Bloomberg.

WSJ: – Discounted muni closed-end funds lure advisers. – Many closed-end funds that invest in municipal bonds are trading at attractive discounts in part over fears of rising interest rates and municipalities’ fiscal woes.

 

Education

About.com: – How to use mutual fund flow data to make better decisions. – Those who follow the financial media will often see reports about inflows and outflows from mutual funds and exchange-traded funds. It makes for interesting reading to see what investors are thinking about in a given time period, but the real question for investors is whether fund flows can serve as a predictor of market direction. The short answer: keep an eye on fund flows, but don’t use them as a basis for decision-making.

 

Treasury Bonds

Donald van Deventer: – Projected T-Bill rates peak at 3.92% for 2021, down 0.13% from last week. – Forward Treasury rates declined relative to last week for the first 8 years of a 10-year projection.

WSJ: – Treasury bonds rebound from earlier decline. – Treasury bond prices rebounded from an earlier decline as rising geopolitical tensions in Ukraine boosted demand for haven assets. In recent trading, the benchmark 10-year note was 2/32 higher, yielding 2.632%, according to Tradeweb. When bond prices rise, their yields fall.

USA Today: – UBS’ Cashin: 10-year note is ‘thermometer’ for angst. – Trying to take the temperature of the financial markets? If so, keep an eye on the 10-year Treasury yield, it’s akin to a market “thermometer” measuring market angst, says Art Cashin of UBS.

Reuters: – Foreign purchases of U.S. Treasuries highest since 2011. – Foreign purchases of U.S. Treasuries jumped in February to their highest level in nearly 2-1/2 years on safe-haven demand due to the global economy and the tension between Russia and the West over Ukraine’s Crimea region, U.S. Treasury data showed on Tuesday.

 

Investment Grade Bonds

SeattleTimes: – Funds may run from corporate bonds when interest rates rise. – Mutual funds have purchased about half of the company bonds that have been added to the U.S. market since 2008, equivalent to about $1.5 trillion of assets, according to Morgan Stanley.

TabbFORUM: – Solving the corporate bond liquidity puzzle. – Regulatory pressure continues to drive down sell-side market making in the corporate bond market, creating a liquidity crisis for the buy side. While a number of players have been working on platforms to help solve the liquidity puzzle, Sassan Danesh, managing partner, Etrading Software, says the fundamental issue is one of market structure, not technology.

Donald van Deventer: – Comcast: A bond market view. – Bond prices reflect the risk-and-probability-weighted outcome of the Comcast bid for Time Warner Cable. Comcast Corporation default probabilities are in the safest quartile of peer group companies, but credit spreads are also low.

 

Junk Bonds

Fundsupermart: – Cautious on U.S. high yield, better value in Asian high yield and EM debt. – A strong run for US High Yield bonds has left yields lower and spreads narrower. It’s time to look for opportunities outside U.S. high yield.

Holmes Osborne: – Nuveen junk bonds get a big boost. – It was announced today that mutual fund giant Nuveen will be bought out by TIAA-CREF. TIAA-CREF is a powerhouse in managing retirement funds for teachers and college professors. Nuveen’s junk bonds have risen substantially in today’s trading.

Elliott Wave: – What the junk bond market is saying (Anyone listening?). – Interest rates tell you something about the borrower. But, they also tell you something about the lender. Sometimes, investors agree to own junk debt even though the yield isn’t much better than high-quality Treasury debt.

Fundweb: – Where are the opportunities in HY bonds? – With yields at record lows and an overall lack of value creating a challenging environment for high yield bonds, where are high yield managers currently finding opportunities?

 

Emerging Markets

WSJ: – Is it time to dive back into emerging-market bonds? – In recent years, investors have shifted into funds that purchase bonds and other kinds of debt with high yields issued by nations such as Mexico, Brazil, Turkey, Russia, as well as debt sold by companies in those emerging markets. These investments have come under pressure over the past year, as the U.S. Federal Reserve has signaled it will slow efforts to push interest rates lower and investors have shifted attention to developed markets.

Bloomberg: – Pimco turning bullish on Brazil’s bonds as strength overlooked. – Pacific Investment Management Co., which manages the world’s largest bond fund, is turning bullish on Brazil’s debt markets, saying investors are ignoring the “long-term strength” of Latin America’s biggest economy.

ETF Trends: – A Mixed case for some EM bond ETFs. – Market observers and portfolio managers have mixed views on emerging markets debt. Some believe yields are not yet high enough to justify the risks. Those with more optimistic views argue swaps and yield spreads have priced in scenarios for some emerging markets, including higher interest rates and increased default rates, that are unlikely to materialize.

Bond Vigilantes: – Video – some thoughts on emerging markets from Hong Kong and Singapore. – I recently visited Hong Kong and Singapore to attend some conferences and meet clients in the region. While travelling, I put together a short video to share some of our views on Asian emerging economies and emerging markets in general.

 

Investment Strategy

Businessweek: – Gross loses to Goldman in hot new bond strategy as Pimco trails. – Bill Gross just can’t catch a break. As investors flock to funds designed to make money even if interest rates increase, Gross’s Pacific Investment Management Co. is alone among the biggest bond managers in suffering withdrawals from the strategy.

WealthFront: – What role should bonds play in your investment portfolio? – According to a recent report by the Bank of International Settlements the amount of global debt passed an ignominious milestone last year, rising from $70 trillion in mid-2007 to over $100 trillion by the middle of 2013.

FT: – Bonds for the long run. – If we know one thing about investing, it’s that time and the power of compounding make stocks an essential holding for savers, right? Well, maybe not, at least when the choice is to hold bonds with a reasonable yield instead and the excess returns from stocks have been on a long term downward trend.

 

Bond Funds

Gary Gordon: – ETFs Of CEFs? Yield shares high income ETF impressive since inception. – Before exchange-traded funds (ETFs) became widely accepted, the closed-end fund, or CEF, offered investors the ability to trade a diversified investment throughout the day. CEFs have a fixed number of shares such that supply and demand determines share price. Yet those prices frequently trade at a significant discount or premium to the actual underlying holdings.

The Street: – Great rotation? ETFs encounter a different kind of shift. – You remember the predictive theory that ultra-low yields would encourage investors to rotate out of bonds and into stocks. The notion picked up steam shortly after the Federal Reserve announced its intention to taper its quantitative easing (QE) program in May 2013.

David Merkel: – Bonds: Size matters. – There have been a few articles recently on Pimco’s underperformance and the increasing concentration on the buy side of the bond market. There is danger, here, for large active managers and their clients.

ETF Trends: – Global tensions, faltering U.S. stocks boost safe-haven Treasury ETFs. – As the political tension in Ukraine intensifies and U.S. stocks decline, investors are jumping back to Treasury bonds and related exchange traded funds, pushing down 30-year Treasury yields to a 9-month low in the search for safety.

Reuters: – Bonds shine again as Great Rotation gives way to asset reflation. –  Last Thursday morning investors queued around the block to buy the bonds of recent defaulter Greece, and by the end of the day were selling U.S. tech stocks furiously.

Wells Fargo: – What’s bubbling up in bonds? – We’re talking Federal Reserve policy, the rally in municipal bonds, concerns in the high-yield corporate space, and how all this affects investment strategy with Jim Kochan, chief fixed-income strategist with Wells Fargo Funds Management, LLC.

 

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