This Week’s Top Bond Market Stories – April 5th Edition

 

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LearnBonds

LearnBonds: – Fidelity bond trading – An in-depth look. – I recently reviewed Vanguard’s bond trading platform, presenting some things the company does great as well as various areas of opportunity. In this article, I would like to shift the attention to Fidelity bond trading.

LearnBonds: – Why did long-term rates fall last week? – This time last week, the buzz in the fixed income markets was about the spike in rates which followed last week’s FOMC meeting. Less dovish comments, both in the FOMC statement and from Fed Chair Yellen during her press conference, pushed yields higher throughout most of the yield curve. However, a funny thing happened on the way to higher rates.

LearnBonds: – Investment strategies – Diversified bond portfolios. – Diversification is a commonly utilized strategy that seeks to minimize the risk of loss by spreading one’s investable assets amongst a variety of securities. The general theory is that the more diverse a portfolio is, the less impact one or several underperforming positions can have on the overall portfolio pie. Thus, the “safest” of portfolios will have more, rather than less positions spread amongst a variety of asset types, industries, market capitalizations, global and domestic geographic regions.

LearnBonds: – Are bond interest rates finally beginning to rise? – Are bond interest rates finally beginning to rise? All winter, investors have been waiting for government bond yields to start moving higher, only to be disappointed again, and again, and again.

LearnBonds: – Three must-buy income stocks for 2014. – Every year, between the end of December and April 15, I pore over the market looking for stocks to add to my portfolio that can provide reliable income with yields above 4%. But I don’t want just any high-income stocks, I want stocks to hold for at least five years with reasonable confidence they will maintain their high yields while preserving capital – and, hopefully, generating capital gains. Here are three must-buy income stocks for 2014.

 

Municipal Bonds

Reuters: – University of California debt tops U.S. municipal bond calendar. – New sales in the U.S. municipal bond market will continue to shrink next week, even with the University of California issuing nearly $1 billion in debt.

Post Bulletin: – Municipal bonds expected to make a comeback. – The dynamics are improving for municipal bonds, which were beaten down so badly last year that they posted their worst returns in nearly two decades.

CNBC: – Miami’s muni bonds: Safe or sorry? – Miami is bouncing back from its foreclosure crisis, but CNBC’s Scott Cohn reports the city is at the center of a 4-year SEC crackdown on municipal bonds. With the former budget director and city already being sued, the SEC is also looking into the Miami Marlins baseball stadium, which was mostly paid for by tax dollars.

Income Investing: – Munis lead a strong first quarter for bonds. – So far in 2014 bonds have defied preseason expectations by posting some strong first-quarter gains, led by many of last year’s worst-performing sectors.

Bloomberg: – Muni bonds extend 2014 rally with first March gain in six years. – The $3.7 trillion municipal market gained in March for the first time in six years, extending a 2014 advance as localities slowed bond offerings.

Reuters: – Citi top muni bond underwriter in first-quarter amid lagging supply. – Citigroup was the top underwriter of U.S. municipal bonds in the first quarter of 2014 as total supply shrank to $60.4 billion, down 25.7 percent from the same period in 2013, Thomson Reuters reported on Tuesday.

Bloomberg: – Pennsylvania schools shun debt amid austerity push. – Pennsylvania school districts are selling the least municipal debt in seven years as localities nationwide respond to calls for austerity even with yields close to generational lows.

 

Treasury Bonds

Barron’s: – Don’t count Treasuries out. – Most signs point to a hard road ahead for U.S. Treasuries. The biggest is Federal Reserve Chair Janet Yellen’s flashing red signal that rates could rise soon after the central bank ends its bond-purchase program. That warning continued to hammer.

Businessweek: – Treasuries extend monthly drop as data seen pointing to recovery. – Treasuries fell, extending their first monthly loss this year, amid speculation U.S. data this week will show a recovery in the world’s largest economy is on track, damping demand for the safest securities.

Fox Business: – Investors fleeing Treasury ETFs. – The first two months of the year saw money flowing into U.S. government debt ETFs, as investors were not scared off by the Fed taper.

FT: – Rate rise pattern is different this time. – The US Federal Reserve’s forward guidance last May that it would soon begin to “taper” its asset purchases marked the start of a new phase of global monetary normalisation.

WSJ: – Treasury bond prices snap 4-day decline. – Treasury bonds rose for the first time in five sessions Thursday, boosted by a disappointing labor-market release. Investors stepped in to buy debt, deeming the yield on the benchmark 10-year note near a one-month high as attractive.

 

Investment Grade Bonds

Businessweek: – Target debt downgraded by S&P after data breach squeezes profit. – Target Corp., the second-largest U.S. discount retailer, had its debt rating cut by Standard & Poor’s after a hacker attack and sluggish performance at its Canadian unit squeezed fourth-quarter profit.

FT: – Returns from corporate debt beat equities. – Returns from high-grade corporate bonds easily beat global equities in the first three months of the year for the first time since mid-2012.

FT Adviser: – Current corporate credit environment is a ‘sweet spot’. – Strengthening economies and liquidity are plentiful, presenting investors with a number of options.

WSJ: – For borrowers, bonds are beautiful. – Highly rated firms sold about $317 billion in the U.S. during the first quarter—the second-highest quarterly figure ever and the most since the $347 billion logged in the first quarter of 2009, according to Dealogic data going back to 1995.

WSJ: – Investors clamor for risky debt offerings. – Investors are snapping up low-rated securities backed by companies, home mortgages and car loans at a clip rarely seen since the financial crisis, as fund managers and others tire of paltry yields on safer assets.

Businessweek: – Prepare to fail buying bonds in sellers’ world. – Traders trying to purchase investment-grade notes are failing about 46 percent of the time, close to the worst rate in more than four years as measured by activity on MarketAxess Holdings Inc.’s electronic platform. On the flip side, investors trying to sell the debt are having the easiest time on record, with an 85 percent success rate.

 

Junk Bonds

OneGoFinance: – High-yield closed-end bond funds are a great alternative to cash in a market correction. – As the first quarter of 2014 comes to a close, caution is the word for the markets as we enter the second quarter of 2014. The second quarter has been the worst-performing quarter for the US markets in three of the past four years. The SPDR S&P 500 ETF (SPY) and PowerShares QQQ ETF (QQQ) were negative for those three quarters, and both have been negative in five of the past eight second quarters.

Bloomberg Brief: – Low-cost funding fails to lure high-yield issuers to market. – The average cost of capital for U.S. high-yield issuers is near an all-time low, at 5.3 percent, according to BAML data. This is well below the index average 2004-2014 of 8.7 percent, following five years of easy-money policies by central banks that caused investors to pour unprecedented amounts of money into high-yield bonds.

Yahoo Finance: – Flight from quality: Investment rally is great news for high yield. – The below graph reflects changes in popular fixed income ETFs since the 2008 crisis. As the bond market rally had softened and interest rates rose post-2013, long-duration bonds, as reflected in the iShares 20 Year plus ETF (TLT) have weakened.

Forbes: – High yield bond funds see $493M investor cash inflow. – Retail-cash flows for high-yield funds reversed course and turned squarely positive, with an inflow of $493 million in the week ended April 2, according to Lipper. The healthy infusion of cash was heavy in the exchange-traded fund segment, at 69% of the total TOT +0.88%, or $340 million.

 

Emerging Markets

Forbes: – Are emerging markets too toxic to touch? – Asia Confidential has received a lot of feedback on our view of the relative attractiveness of Chinese and South Korean stocks in both Asian and international contexts. Some of the feedback has suggested that the risks with these markets are too great to make them investible at this juncture. This post is an attempt to address the issue through a deep dive into the concept of risk and how it relates to emerging markets.

IMF: – Emerging markets can manage evolving mix of global investors. – The mix of investors in emerging markets stocks and bonds has evolved considerably over the past 15 years, which has made capital flows and asset prices in these countries more sensitive to events outside their own borders, according to new research from the International Monetary Fund.

Businessweek: – Emerging markets regain investor confidence with ETF rebound. – Emerging markets drew the largest investment flows among U.S. exchange-traded funds last week on bets developing-nation stocks will rebound after they fell to the cheapest relative to developed-nation peers since 2006.

FT Adviser: – Legg Mason’s Zelouf buys big stake in emerging market debt. – The Legg Mason Western Asset Macro Opportunities Bond fund has built up a large stake in emerging market debt on the view an attractive entry point exists in the asset class.

FT: – EMs increasingly unstable amid US Fed taper fallout. – You are an aspiring emerging market economy keen to catch up with richer western rivals. What is the best way to harness global capital markets?

ETF Trends: – Investors want emerging market bond ETFs. – Despite concerns over developing economies, exchange traded funds that track emerging market debt continues to attract attention.

 

Investment Strategy

Globe and Mail: – Income seekers, here’s a low-cost ETF portfolio. – Portfolio-building with ETFs. To start, let’s look at a model portfolio created by National Bank Financial analysts for investors seeking a monthly flow of income.

USA Today: – Hate stocks and bonds? Try alternative assets. – Despite a handsome rally for U.S. stocks recently, American investors are increasingly interested in playing the field.

Tom Madell: – Investors’ choices of funds/ETFs tend to underperform. – In this article, I will show that the funds and ETFs most frequently chosen by investors do not, on average, have a particularly good long-term track record as compared to randomly chosen funds. In fact, over the last five years, investors could have achieved better returns instead by using a rather surprisingly simple method.

David Fabian : – 5 Key strategies for ETF income investors. – Now that we just closed out the first quarter, this is a perfect time to review your statements and assess the strengths and weaknesses of your portfolio. Through this analysis, you may find areas that can be adjusted to enhance your returns for the remainder of the year.

Zacks: – 3 Treasury bond ETFs to play rising short term yields. – Long-term bond yields actually fell in the crucial period and thus emerged as true winners this year. ETFs targeting the high-end of the yield curve gifted nice returns in 2014 and are expected to behave in the same manner as the U.S. economy nears the end of the cheap-money era. Below, we have highlighted three long-term bond ETFs in detail which could be solid picks in the current environment.

 

Catastrophe Bonds

Digital Journal: – Catastrophe bond market off to a record start in 2014, says Artemis. – Record first-quarter issuance as investors continue to be attracted to cat bonds and insurance-linked securities.

 

Bond Funds

Businessweek: – Biggest ETF flow from U.S. debt since ’10 on growth optimism. – Investors of exchange-traded funds that buy U.S. government debt are signaling confidence that economic growth is taking root.

Bloomberg: – Emerging markets regaining confidence of ETF investors. – Emerging markets drew the largest investment flows among U.S. exchange-traded funds last week on bets developing-nation stocks will rebound after they fell to the cheapest relative to developed-nation peers since 2006.

CNBC: – Bill Gross isn’t the only bond manager losing assets. – The new year has not been kind to Bill “Bond King” Gross, but he is not alone.

Reuters: – Pressure rises on Gross as investors pull $3.1 bln from Pimco’s flagship fund. – Investors pulled another $3.1 billion from Pimco’s flagship fund in March, the 11th straight month of outflows from the world’s largest bond fund, and its performance on the month lagged 95 percent of its peers due to a spate of wrong calls by long-time manager Bill Gross.

Reuters: – DoubleLine Total Return had $263.8 million of inflows in March. – The DoubleLine Total Return Fund, which is overseen by high-profile investor Jeffrey Gundlach, had inflows totaling $263.8 million in March and $211 million in the first quarter, DoubleLine Capital said on Wednesday.

ETF.com: – 3 Bond ETFs that stood out in 1st qtr. – Investors poured more than $11 billion into fixed-income ETFs in the first quarter of 2014, flocking to the safety of debt at a time when confidence in the stock market seemed shaken.

 

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