This Week’s Top Bond Market Stories – January 18th Edition

 

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LearnBonds

LearnBonds: – My thoughts on high yield bonds. – High yield bonds have been referred to as “junk bonds,” but that is not the case—they can be a savvy investment for investors who are conscious of the risks involved with these types of bonds.

LearnBonds: – What is and what shall be. – As long as inflation remains tame, the Fed will keep rate policy accommodative, regardless of what the market views as encouraging employment trends. The Fed does not want to hear employment conditions are improving.

LearnBonds: – Taking a walk along the “BB” yield curve. – Today, let’s take a look at near investment grade paper of BB and BB+ quality to see what the market bears along the yield curve. The following list of five bonds was taken from available inventory at Fidelity on Tuesday, January 14 at roughly 2 PM. Bonds were selected randomly at intervals ranging from 5-28 years.

LearnBonds: – Was it crazy to buy these bonds when I did? – Was it crazy to buy Treasury bonds last summer?  Some investors may think so.  I, on the other hand, am certainly glad I didnot wait.  Not only would I be paying more now (still true as of January 10, 2014), despite Treasury yields marching higher in the interim, but I would also have missed out on collecting and accruing a few percentage points worth of interest.

 

Municipal Bonds

WSJ: – Muni-bond funds break redemption streak. – Investors put a net $103 million into municipal-bond funds in the latest week, breaking a 33-week redemption streak that has weighed heavily on the market, Lipper said Thursday.

Bloomberg: – Port authority sets $1 billion sale amid christie bridge scandal. – The Port Authority of New York and New Jersey, the agency at the center of a scandal involving Governor Chris Christie’s staff, plans to sell $1 billion of taxable municipal bonds as soon as next week.

MarketWatch: – Puerto Rico risk chatter abounds as bonds hold up. – There was a lot of chatter about Puerto Rico Wednesday, particularly on the heals of a conference about the financially-troubled commonwealth that featured some well-known municipal market participants.

CNBC: – Here’s what you need to know in the muni bond market. – A volatile stock market could be the best friend to the municipal bond market, which has suffered through a shaky year amid a deluge of ugly headlines.

FT: – Puerto Rico a step closer to default despite moves to cut deficit. – Creditors to Puerto Rico are meeting in New York on Thursday with lawyers and debt restructuring specialists as a moratorium on payments on the territory’s $70bn in public sector debt and an additional $40bn of unfunded pension liabilities appears increasingly likely, these specialists say.

AccountingWEB: – SEC Sets July 1 as start of municipal advisor registration. – July 1, 2014, is the date when the first set of municipal advisors will be required to register under new rules the US Securities and Exchange Commission (SEC) finalized last year.

Barron’s: – Municipal bonds poised for resurgence. – Income investing is making a comeback. From high dividend-paying stocks to utilities and REITs, the charts show a raft of positive developments. The difference today, however, is that the bond market and municipal bonds in particular are finally responding.

Bloomberg: – Biggest ETF’s premium grows as fund exodus abates: Muni credit. – The biggest exchange-traded fund tracking the $3.7 trillion municipal-bond market sold this week at the highest premium to the value of its assets since May, an early sign that local debt may avoid a second year of losses.

Motley Fool: – Municipal Bonds: The best income investment of 2014? – The bond market has been a scary place to invest lately, with soaring rates causing losses in 2013. But in 2014, municipal bonds are starting to look appealing, especially to investors who can benefit from their unique tax advantages.

BusinessRecorder: – Shrinking U.S. municipal fund outflows could signal end of exodus. – A record-setting flood of money from the US municipal bond market may be near an end as the sector’s high yields beckon investors bearing cash from year-end redemptions. In a hint that the relentless sell-off that sucked $62.6 billion out of municipal bond funds in 2013 is winding down, data from Lipper on Thursday showed net outflows slowed to just $18.99 million in the week ended January 8.

 

Treasury Bonds

WSJ: – Treasury bond prices gain from inflation figures. – Investors scooped up Treasury bonds Thursday as the latest inflation indicator eased concerns that the Federal Reserve would dial back its bond purchases at a faster pace in coming months. The consumer-price index, which measures how much Americans pay for everything from snack foods to rent, posted an annualized rate of 1.5% last month, staying below the central bank’s 2% target. Inflation erodes the value of bonds over time.

FT: – Treasury market poised for jump in foreign inflows. – The consensus among strategists at the start of 2014 was that stocks would make further gains and bonds would lose ground, but already US Treasuries are putting that thinking to the test.

WSJ: – Treasurys slide on economic data. – Treasury bonds fell for a second straight session as a regional manufacturing report boosted sentiment over the economic outlook, dimming the allure of safe assets.

Bloomberg: – PIMCO increases government debt holdings as Fed begins tapering. – Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., increased holdings of Treasuries and government-related debt in December, as the fund suffered record redemptions in 2013 after the Federal Reserve said it would slow its bond purchases.

WSJ: – Treasury bonds add gains. – Treasury prices edged higher, holding on to the gains fueled by Friday’s disappointing payrolls report.

 

Investment Grade Bonds

Reuters: – Investment grade firms face tough battle as yield fight rages. – High-quality European corporate credits will be forced to offer juicier premiums and longer maturities on new bonds in order to compete with higher yields available from weaker names.

WSJ: – Companies power up a chilly bond market. – The U.S. corporate-bond market is showing signs of life after a sluggish start to 2014, with highly rated companies selling about $15 billion in debt on Wednesday in the busiest day this year.

MoneyBeat: – U.S. company credit ratings expected to be generally stable in 2014. – Credit ratings of U.S. companies are expected to be generally stable in 2014, Standard & Poor’s Ratings Services said on Thursday, though businesses with so-called junk grades could face more challenges than those rated as investment grade.

Income Investing: – U.S. corporate default rate ends 2013 at 2.2%. – If you’re looking out for risk in bond markets this year, it probably won’t come in the form of defaults. Moody’s late last week said the default rate among junk-rated U.S. companies dropped to a mere 2.2% in the fourth quarter of 2013, down from 2.7% in the prior quarter and 3.4% at year-end 2012. Globally, the default rate finished 2013 at 2.6%, down from 3.0% from the prior quarter, and in Europe it fell to 3.4% from 3.6%.

What Investment: – Stick with corporate bonds despite tapering fears: JP Morgan. – The consensus view that the tapering of the US government’s monetary easing programme will be bad for investors in corporate bonds is wrong, according to Andreas Michalitsianos, manager of the JP Morgan Sterling Corporate Bond Fund.

 

High-Yield

FT: – Risky high-yield debt makes return in Europe. – Investors fretting the corporate credit market is becoming overheated have pointed to the return of boom-era “payment-in-kind” debt.

Bloomberg: – Firms tripling junk returns lure most since ’07: Credit markets. – Firms that use borrowed money to lend to the smallest and riskiest companies are attracting cash at the fastest pace since before the crisis, wooing buyers with returns that are triple those of the broader junk-debt market.

Forbes: – Best buy high yield bonds sink in trading, CDS widens as shares plunge. – Bonds backing Best Buy traded lower, credit protection costs ballooned, and the company’s shares plunged after it reported a decline in holiday-period sales. Total revenue for the nine weeks ended Jan. 4, 2014 were $11.45 billion, for nearly a 3% decline from $11.75 billion in the nine weeks ended Jan. 5, 2013, according to a company statement.

The Street: – Bank loans instead of high-yield bonds as rates rise? – After rising sharply in 2013, yields on the 10-year Treasury note have paused at 3% following a weak December jobs report, but the long-term trend for interest rates still looks to be higher.

Hedge Fund Insight: – Hedged high yield bonds vs. bank loans in a rising rate environment. – Both hedged high yield bond and bank loan strategies can help limit risks associated with a rising interest rate environment, according to Fran Rodilosso, fixed income portfolio manager with Market Vectors ETFs.

Cliff Smith: – Unique application of moving day average to high yield bond ETFs. – The moving day average (MDA) has long been recognized as a simple tactical growth and risk mitigation strategy for retirement portfolios. The basic idea is to be in a stock/ETF when it is above the MDA, and to be out of a stock/ETF when it is below the MDA. Research has shown that large drawdowns can generally be avoided and overall total returns improved by using the MDA strategy.

FT: – Treasure hunt in U.S. bond junkyard turns tricky. – Hunting treasure in the junkyard of capital markets has been easy in recent years. Junk – or high yield – bonds have rallied strongly since the financial crisis. But as benchmark interest rates start to rise, that search is about to become a good deal more challenging.

 

Investment Strategy

AllianceBernstein: – 7 Lessons every fixed-income investor should learn from 2013. – After more than two decades of a fixed-income bull market, 2013 was not a great year for the bond market. Rates bottomed out, many mutual funds had negative returns and bond mutual funds experienced a record $80 billion in redemptions as investors hit the panic button. But it would be foolhardy to assume that 2014 will be a repeat year for fixed income. Rather, the bond market has become more complex and will likely reward those who closely study what worked, what did not and why.

Citywire: – Where is the value for bond investors? – One of last year’s most popular bond calls was simply to slash duration (the interest rate risk the fund is exposed to), but that may have run its course. Andrew Wells, global chief investment officer for fixed income at Fidelity, warns it is ‘by no means a panacea’ for two reasons.

LPL Financial: – Why own bonds? – A look back at prior stock market pullbacks illustrates how bonds have historically provided good diversification benefits.

Smarter Investing: – Bank loans instead of high-yield bonds as rates rise? – After rising sharply in 2013, yields on the 10-year Treasury note have paused at 3% following a weak December jobs report, but the long-term trend for interest rates still looks to be higher.

Investorplace: – Income investing strategies for 2014: Bond ETFs. – Income investors face a brave new world in 2014 that is punctuated by real interest rates trending higher and the Federal Reserve slowly reducing the pace of their quantitative easing measures. This has led to fears of a massive shift in asset allocation from traditional fixed income to equities and alternative investments. In fact, many have abandoned bonds and bond ETFs altogether and have sworn off owning them for the foreseeable future.

Brian Romanchuk: – Do bonds make sense for long-term investors (Part II). – In part one, I argued that the problem with bonds is that long-term bond yields are quite a bit lower than expected long-term equity returns. I argued the main reason to hold long-term bonds is the uncertainty about those equity market returns. In part two I will list a few other reasons to hold bonds in your portfolio.

Investorplace: – Income investing strategies for 2014: Bond ETFs. – Income investors face a brave new world in 2014 that is punctuated by real interest rates trending higher and the Federal Reserve slowly reducing the pace of their quantitative easing measures. This has led to fears of a massive shift in asset allocation from traditional fixed income to equities and alternative investments. In fact, many have abandoned bonds and bond ETFs altogether and have sworn off owning them for the foreseeable future.

Brian Romanchuk: – Do bonds make sense for long-term investors (Part II). – In part one, I argued that the problem with bonds is that long-term bond yields are quite a bit lower than expected long-term equity returns. I argued the main reason to hold long-term bonds is the uncertainty about those equity market returns. In part two I will list a few other reasons to hold bonds in your portfolio.

 

Emerging Markets

FT: – Storms gather over emerging markets. – Since the financial crisis, emerging markets have enjoyed some indirect benefit from the sluggish recovery of the developed world. The unprecedented stimulus unleashed by the largest central banks has depressed yields on safe assets, pushing investors to search for higher rates in ever more exotic locations. Between 2010 and 2013, private capital inflows to developing countries jumped to about 6 per cent of their combined gross domestic product.

Bloomberg: – Pimco love affair ends decade after lula bond bet. – Bill Gross is souring on Brazil. After the country’s real-denominated debt plunged 13.6 percent last year, more than the 9 percent average decline for developing nations, Pacific Investment Management Co.’s chief investment officer said Jan. 15 that Brazil was no longer a preferred market.

MarketWatch: Emerging market bonds and your retirement portfolio. – Although it has been a winding road for nearly all fixed-income investors over the past year, emerging market bond investors have especially had their fair share of white-knuckle moments.

BusinessWeek: Emerging markets dodge Fed tapering in best bond-sale start. – Borrowers in developing nations are flooding markets with a record amount of bonds before reductions to Federal Reserve monetary stimulus drive up funding costs.

BusinessWeek: Gross says Brazil no longer Pimco emerging-market favorite. – Pacific Investment Management Co.’s Bill Gross, hurt by a wrong-way bet on Brazil last year, said the nation is no longer a preferred emerging market for the world’s largest fixed-income manager.

WSJ: Hot demand for emerging-market bonds. – Emerging-market governments around the globe are selling bonds at the fastest pace on record, highlighting that demand for such debt remains robust despite a turbulent six months that left many investors scampering for the exits.

 

Catastrophe Bonds

Canadian Underwriter: – Some cat bond return rates hit 18% but investors face risk of ‘losing it all’, exec says. – Canadian insurance carriers will have a combined ratio exceeding 100 in 2013 and the industry will see “a lot more” disasters arising from transportation of hazardous materials, while money is flowing into the industry, indirectly, in the form of catastrophe bonds, an insurance company executive suggested Thursday.

Artemis: – Florida Cat Fund looks to cat bonds & collateralized reinsurance. – At an insurance summit held yesterday in Orlando, Jack Nicholson the COO of the Florida Hurricane Catastrophe Fund said that it is seeking approval to buy up to $1.5 billion of private reinsurance, and favors using catastrophe bonds and collateralized reinsurance.

 

 

Bond Funds

Junius: – PIMCO total return ETF outperformed its sister mutual fund by 77 basis points. – The PIMCO Total Return ETF (BOND) was launched in March 2012, as an actively managed ETF using a similar strategy to its hugely popular PIMCO Total Return mutual fund. Both funds are managed by Bill Gross, one of the most prominent bond investors in the U.S. The strategy of both funds seeks to maximize total returns by holding a diversified portfolio of high quality bonds.

Investors.com: – Rising rates push popularity of short-term bond funds. – Facing a notoriously low-yielding market, fixed-income investors have clamored for yield with low volatility. The industry has responded in part by offering new short-term bond funds — seven during 2013, says Morningstar Inc.

MarketWatch: – BlackRock’s Larry Fink: There are two important rotations in the bond market. – BlackRock Inc. CEO Larry Fink drew attention to an asset-allocation theme that’s gotten a lot of attention recently, and that we’re likely to hear more about in the coming year: Institutional investors are taking profits in equities and switching back to long-term bonds.

Investors.com: – ETF investing strategies: Seven new ETFs in 2014. – Exchange traded fund providers have kicked off the New Year by rolling out a batch of new funds onto the stock market.

BusinessWeek: – Singer prodding Hess proves bondholder boon. – Billionaire hedge-fund manager Paul Singer’s demand that Hess Corp. find ways to bolster shareholder returns is turning into a windfall for bondholders.

Investing.com: – 3 ETFs surging on weak jobs data. – The U.S. market was taken aback by the weak job growth data for December, suggesting that the Fed might take a more cautious stance on its plan to curb the massive stimulus program. Additionally, it gives more ammo to the idea that the Fed may hold off on more QE reductions for longer than initially expected. In December, the Fed finally decided to cut its bond purchases by $10 billion starting this month.

ETF Trends: – ETF virtual summit highlights interest rate risk in bonds. – After touching a three decade low, benchmark rates are already starting to creep higher, weighing on bond exchange traded fund returns. Consequently, fixed-income investors need to adapt to the turning tides.

Interactive Investor: – Active income portfolio could find high returns hard work in 2014. – Active income seeking isn’t going to get any easier in 2014. For many years, the knee-jerk reaction of many cautious investors has been to lock-in steady income with government bonds.

BusinessRecorder: – Bond funds worldwide attract $5.3 billion inflow: BofA. – Investors poured $5.3 billion into bond funds worldwide in the latest week while pulling profits out of stock funds after market gains in 2013, data from a Bank of America Merrill Lynch Global Research report showed on Friday. The inflows into bond funds in the week ended January 8 marked the biggest cash surge since May of last year, while stock funds posted outflows of $400 million. Demand stumbled for funds that mainly hold US stocks, which posted outflows of $2.2 billion.

Bloomberg: – Bonds captivate $16 trillion of pensions. – Bond buyers stung by the first losses in more than a decade can look to pension funds from companies such as Ford Motor Co. for a measure of redemption.

 

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