This Week’s Top Bond Market Stories – February 15th Edition

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LearnBonds

LearnBonds: – Understanding the taper and its effect on your fixed income portfolio. – It’s time to clarify how quantitative easing affects the market. QE critics say it artificially props up the market, that it causes inflation, and that it has killed fixed income. There is some truth to these criticisms, so here’s what to watch for with stocks, and how to find other fixed income investments.

LearnBonds: – Here’s one of the few compelling bond ideas still available today. – Thus far, 2014 has been a great one for investors who already owned bonds.  Putting new money to work, however, has become more challenging.  This is due to the fact that benchmark yields have fallen and corporate spreads have only widened slightly since the start of the year.  Nevertheless, there are a few opportunities worth mentioning.  One such opportunity is in the senior unsecured notes of Flextronics International Ltd.

LearnBonds: – Puerto Rico municipal bonds – Are they a buy? – No discussion of the municipal markets would be complete without mentioning Puerto Rico. Other than the nightmare which is Detroit (where bondholders could be crammed down in favor of public employee pensions), Puerto Rico has been the dominant story in the municipal debt world.

LearnBonds: – Are REITs a practical bond alternative? – Since investors can find comparable yields in both products, the temptation may be there to shift bond exposure towards REITs, especially since the latter also tends to grow its yield over time. However, the capital risk of REITs remains unquestionably elevated relative to the contractual guarantee of a bond.

LearnBonds: – What the market is telling us. – Today, I want to look at the state of confidence that exists in the financial markets.  As usual, I have a few statistical measures that I rely upon to give me some indication of how investors are feeling in general about how they perceive the market.

 

Municipal Bonds

BondBuyer: – SEC examining muni ATS’, broker’s brokers for anti-competitive practices. – The Securities and Exchange Commission is examining the extent to which dealers using alternative trading systems and broker’s brokers are engaged in anti-competitive practices such as blocking or filtering out competitors from being able to bid on their municipal securities.

Reuters: – Louisiana to sell $500 mln in bonds; assures on oil spill costs. – New municipal bond issuance is set to fall to around $3.3 billion next week, with the state of Louisiana issuing an assurance on costs related to the 2010 oil spill in the Gulf of Mexico before a planned sale of nearly $500 million of state-backed debt.

NYT: – After setbacks, municipal bond sector is looking up. – The municipal bond market has been judged lately more by its failures than its successes, and the judgment has been harsh. But there are signs we have turned a corner.

ValueWalk: – Puerto Rico’s junk bonds still attracting interest. – Puerto Rico municipal bonds have been downgraded to junk status, but the re-rating seems to have already been priced in, creating an opportunity for investors who aren’t limited by restrictions on their high yield exposure.

Businessweek: – Puerto Rico cuts push OppenheimerFunds junk holdings above limit. – OppenheimerFunds Inc. has municipal funds with more speculative-grade holdings than prospectuses allow after Puerto Rico was cut to junk by the three biggest rating companies.

Financial Advisor: – Winter in Puerto Rico. – Puerto Rico is not representative of the broader municipal bond market, as both state and local governments continue to benefit from improving revenues.

MuniNetGuide: – Puerto Rico: The next emerging market credit? – Puerto Rico debt is now trading at yields much higher than that of Italy, Spain and Portugal – and is roughly on a par with Greece. In contrast to Greece, Puerto Rico is not a serial defaulter. In fact, it is part of an asset class – US state and territorial bonds – that has not seen a default in over 80 years. Further, the last default – of Arkansas in 1933 – ended in a full recovery for investors. So, from an international perspective, Puerto Rico bonds appear to offer good relative value.”

Bloomberg: – Fed rule may curb bank buying after holdings double. – U.S. banks poured more than $200 billion into state and local-government debt since the onset of the financial crisis six years ago, boosting their share of the $3.7 trillion market to a two-decade high.

 

Treasury Bonds

Motley Fool: – Why floating-rate Treasuries won’t solve your income woes. – The Treasury recently issued its first floating-rate bonds, with variable interest rates tied to short-term rates. Despite interest from institutional investors, though, floating-rate Treasuries might not meet your needs as an income investment.

WSJ: – Investors ramp up bets that U.S. government debt will fall. – Investors are ramping up their bets that U.S. government debt will fall in value after an unexpected rally in the Treasury market this year amid concerns the U.S. economic recovery is foundering.

Businessweek: – U.S. Bill sale shows calm before debt-limit vote. – Treasury-bill auctions suggest investors are betting U.S. lawmakers will successfully raise the nation’s borrowing limit after Speaker John Boehner said the House will vote on the measure with no conditions attached.

Reuters: – Long yields highest in 2 weeks, boosted by Yellen. – Yields on long-dated U.S. Treasuries climbed to their highest in two weeks on Tuesday after Federal Reserve Chair Janet Yellen pledged to continue the bank’s current strategy of reducing asset purchases despite a still unstable labor market.

WSJ: – Treasury bonds pull back; 10-yr auction draws strong demand. – U.S. Treasuries fell for a third straight session on Wednesday, with recent weakness in bond prices drawing foreign buyers into a $24 billion sale of 10-year notes.

 

Investment Grade Bonds

FT: – CDS outpace bonds in short-term markets. – Faced with an increasingly illiquid market for corporate bonds, investors are turning to a “shadow bond” market composed of derivatives linked to the performance of debt.

Income Investing: – Time Warner bonds surge on comcast deal. – It’s M&A time in corporate bond-land again, and today’s big winner is Time Warner Cable. Its bonds are surging Thursday on news that Comcast will buy the company in a $45-billion all-stock deal.

Bloomberg: – Morgan Stanley sees bond evolution in trade jump. – Corporate-bond trading volumes are surging to the highest ever to start the year as investors adapt to a new reality of reduced dealer balance sheets by turning to electronically exchanged debt and smaller transactions.

 

High-Yield

FT: – Taper time-bomb hits US high-yield debt. – The global sell-off in risk assets is taking some of the shine off U.S. junk bonds after a multiyear rally that has kept yields on the securities near historical lows.

Market Realist: – Why high yield weekly issuance continues to favor suppliers. – Of the 17 high yield bond (JNK) deals announced for the next week, 12 were for M&A (mergers and acquisitions) and LBO (leveraged buyouts) and five were refinancing.

Income Investing: – Junk bond default rate drops to 1.8% in January. – If the junk-bond market has a disappointing year it probably won’t be because a lot of companies defaulted. Credit risk is near all-time lows for speculative-grade companies in the U.S., with the default rate falling to 1.8% in January from 2.2% in December and 3.3% a year ago, per Moody’s. Globally, the default rate fell to 2.5% in January from 2.5% in December.

Focus on Funds: – ‘Risk off’ market? Not quite, to judge by junk and mega caps. – In some respects 2014′s market has had a classic “risk off” feel. The S&P 500 fell 3.6% in January. Gold, yesteryear’s haven, is gaining, boosting SPDR Gold Trust (GLD). Bonds are back in style. Low-beta, or low-volatility stocks, are outperforming.

Reuters: – U.S. high-yield muni bond funds lead inflows. – High-yield U.S. municipal bond funds attracted new cash for a fifth straight week even as major U.S. credit rating agencies downgraded Puerto Rico to junk status, data released on Thursday showed.

 

Investment Strategy

NYT: – Minimizing the tax drag on your investments. – Unless you happen to be a certified public accountant, or related to one, the topic of taxes you pay on your investments probably has as much appeal as a root canal. Understood. Nonetheless, it’s a topic well worth focusing on.

James Picerno: – Asset allocation and rebalancing review. – deciding if it’s timely to rebalance, or not, begins with the numbers. Let’s review how the returns for the major asset classes compare with our standard set of ETF proxies using a 250-trading-day window.

About.com: – Now isn’t the time to pick bond funds based on past performance. – Investors often fall into the trap of picking funds based on their past performance. After all, it’s a lot easier to look at a single number than to dig deep into a fund to figure out what makes it tick. That’s never a good idea, but it’s particularly unwise when it comes to choosing a bond fund right now.

MoneyBeat: – PIMCO’s Gross raises government holdings. – Bill Gross boosted holdings of high-grade U.S. government bonds and mortgage-backed securities last month for Pacific Investment Management Co.’s Total Return Fund as a flight for safety fueled a strong price rally in the debt securities.

Businessweek: – How the decline in stocks could help your 401(k). – This year’s stock market decline has left investors uneasy. But money managers say take a breath — the downturn could offer opportunities to strengthen your retirement savings for the long run.

The StarPhoenix: – Income harder to find these days. – Higher valuations make it more difficult to find attractive entry points, but they also produce lower dividend yields. As a result, the Venator Income Fund portfolio managers have made a slight shift to Canadian convertible bonds from equities and U.S. high-yield bonds.

Morningstar: – The virtue of contrarianism. – Sometimes the best investment advice is to do the opposite of what everyone else is doing. When the stock market was in free fall during the financial crisis, many investors who had hung on for as long as they could take it finally gave up. They sold their stocks, locking in huge losses and missing out on a historic rally.

 

Emerging Markets

Reformed Broker: – Emerging markets: Here come the bulls. – The hottest topic this year so far is whether or not Emerging Markets stocks and bonds are a buy. After more than three years of massive underperformance versus developed markets and a huge disparity in valuation, is now the time to get excited about the foreign investments that no one else will touch?

Reuters: – EM back in vogue – for now. – Risk appetite is in full flow, led by Turkey’s remarkable return to the international bond markets on Wednesday, just weeks after a currency crisis had thrown the country, and through it the emerging markets asset class, into a tailspin.

MoneyBeat: – How to trade emerging markets now. – In recent weeks, EM could have stood for Emerging Markets or En Masse given the stampede out of developing world assets. The dust is beginning to settle, though, and investors are taking a more discerning approach.

 

Catastrophe Bonds

Artemis: – 2014 catastrophe bond maturities by peril and expected loss. – With over $4.2 billion of outstanding catastrophe bonds scheduled to mature in 2014, the insurance-linked securities (ILS) and cat bond primary issuance market will have opportunities to entice sponsors to re-issue their risks in new transactions in 2014.

 

Bond Funds

Yahoo Finance: – The ‘Great Un-Rotation’: Investors rush out of stocks, into bonds after tough January. – January was a rough month for the U.S. stock market, a terrible one for emerging markets and good for bonds. Like moths to a flame, mutual fund investors responded accordingly, taking a record amount of money out stocks and moving much of it into bonds.

InvestorPlace: – 3 ETFs for high yield, interest rate protection. – Long/short bond ETFs could be the best way for investors to have their cake and eat it too.

ETF Daily News: – PIMCO files for more active ETFs. – PIMCO, the California-based ETF and mutual fund issuer, appears to be on a roll and is seeking to triple its active ETF roster by offering variations for the popular mutual funds not only in the fixed income world, but also in the broad space – including equities and commodities.

ETF.com: – Credit trumps duration in bond ETFs. – This article is part of a regular series of thought leadership pieces from some of the more influential ETF strategists in the money management industry. Today’s article features K. Sean Clark, CFA, chief investment officer of Philadelphia-based Clark Capital Management.

ValueWalk: – ETFs drop 3.2 percent amid U.S., EM equity worries. – ETFs had a rare drop in value as investors moved away from emerging market and US equities in general, losing 3.2% in total ETF/ETP (exchange traded funds/products) assets, dropping to $3.2 trillion, according to a ETFGI report on Thomson Reuters.

USA Today: – Be wary of bank loan funds. – As their name suggests, bank loan funds invest in bank loans, typically, commercial and industrial loans. The loans are usually secured, which means the bank can take certain assets if the borrower defaults, and sell those assets to recoup its losses. And the loans are senior loans, which means that lenders are high up the creditor line in case of bankruptcy. So what could possibly go wrong?

abc News: – Abandoned last year, bond funds are back on top. – Bond funds have made money so far this year as many stock markets around the world have faltered.

 

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