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

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LearnBonds

LearnBonds: – More choices for yield, thanks to the Fed taper. – One thing QE has accomplished – it’s driven down interest rates so much that it’s cut sharply into bond-buyers’ income stream, and they’re not going to rediscover that lost income in bonds for years.

LearnBonds: – Bonds and taxes – Three tax terms you need to understand. – I am a big fan of investing in individual bonds and think every fixed-income investor should spend some time learning about the benefits of an individual-bond allocation.  As part of that learning process, it is important to understand some of the tax implications related to individual bonds.  In this article, I would like to highlight three such intricacies.

LearnBonds: – Two required stocks – Yes! stocks – For all income investors. – Bonds often form the bulk of the portfolios of income investors, particularly retirees who see safety in holding until their bonds mature. But yields as low as they are, there are better income-generators out there in stocks. And, as any financial planner worth his salt will tell you, even the most conservative investors need to own some stocks for growth to offset the inescapable loss of buying power from inflation. So consider these two stocks for any and all income investors.

LearnBonds: – Playing it smart with high yield bond funds. – With default rates continuing to trend near historical lows, high yield bonds continue to provide attractive yields for aggressive fixed income investors with relative safety of principal. The risk of high yield bond funds, while seemingly dormant for the time being, should not be underestimated by the average retail bond investor.

LearnBonds: – Utility Bonds – Meaning, merits and risks. – A quick primer on utility bonds, what are they and what are the relative risks of owning them.

 

Municipal Bonds

Benefits Pro: – Households, mutual funds turning away from U.S. munis. – Last year was a tumultuous one for the U.S. municipal bond market, with individual investors fleeing in droves, according to new data released by the Federal Reserve.

Bond Buyer: – Piwowar wants to improve muni price transparency. – Securities and Exchange Commission member Michael Piwowar has asked the staff of the Office of Municipal Securities to give him some proposals that he can push through the SEC to improve price transparency in the municipal market.

NASDAQ: – When pension pain signals bigger ills: Three symptoms to look for. – While we do not believe pension problems threaten to harm state and local finances to the point of breaking the municipal bond market, they are a source of financial pain in some locales. And in rare cases, overly burdensome pension liabilities, when combined with a generally weak credit profile, may be reason to avoid investing in the municipal debt of certain issuers.

Bloomberg: – SEC asks municipal bond sellers to report violations. – The Securities and Exchange Commission urged municipal borrowers and underwriters to voluntarily report violations, allowing them to avoid steeper penalties after an investigation.

Businessweek: – Muni-bond markups about double those on corporate debt, S&P says. – Investors in the $3.7 trillion municipal-bond market pay markups to brokers that are about twice as high as those on corporate securities, according to Standard & Poor’s Dow Jones Indices.

Morningstar: – Consider paying a premium for municipal bonds. – Municipal (muni) bond investors generally prefer to purchase muni bonds at or near par value. But with interest rates at historically low levels, most existing muni bonds available for purchase are priced well above their par value. Muni bond investors may be overlooking these premium bonds because of a misperception that if they pay the premium, their returns will be lower at the bond’s maturity.

ETF.com: – 2 ETF plays for Puerto Rico munis. –Puerto Rico has been in the limelight recently because it had its credit rating downgraded due to its ongoing financial challenges centered on heavy loads of debt. The munis were auctioned at an interest rate of over 8 percent. They mature in 2035, and were sold with a coupon of 8 percent and a yield of 8.72 percent—attractive yields for income-focused investors.

Reuters: – Massachusetts to offer rolling retail muni bond sales via platform. – Massachusetts will begin selling general obligation bonds to retail investors for weeks at a time over an electronic trading platform on Monday, under a program that officials say is the first of its kind in the $3.7 trillion U.S. municipal bond market.

 

Education

Market Realist: – Comparing high yield bonds and investment-grade corporate bonds. – The risk associated with investment-grade corporate bonds is less than high yield bonds. The difference between the rates of return for investment-grade corporate bonds and high yield bonds is known as the “junk-to-investment-grade spread.” This spread, also called “credit spread,” is the premium investors demand in order to hold high yield bonds over lower-yield investment-grade corporate bonds.

Market Realist: – Comparing high yield bonds and investment-grade corporate bonds. – The risk associated with investment-grade corporate bonds is less than high yield bonds. The difference between the rates of return for investment-grade corporate bonds and high yield bonds is known as the “junk-to-investment-grade spread.” This spread, also called “credit spread,” is the premium investors demand in order to hold high yield bonds over lower-yield investment-grade corporate bonds.

 

Treasury Bonds

Miami Herald: – Should you consider U.S. Treasury’s new floating rate notes? – If you are looking for something new and exciting in the investment world, you may want to take a look at the U.S. Treasury’s latest offering: floating rate notes (FRNs).

Morningstar: – Treasury bonds take it on the Chin. – Strong job growth sent Treasury rates upward, but corporate credit spreads held steady on a flood of new issues.

Businessweek: – Treasuries little changed before $30 Billion 3-year notes sale. – Treasuries were little changed before the government’s auction of $30 billion of three-year notes as investors await signals about how much impact severe winter weather had on the U.S. economy.

the Observer: – Why invest in bonds and treasury bills? – When it comes to investment, most of us do very little research before putting money in a particular investment. To many, hearing that someone has earned big is often sufficient research. Over the last decade or so, a number of corporate companies have issued shares to the general public. Some of these listings led to a doubling in share values in weeks.

4Traders: – Treasury bonds gain ground for third session. – Treasury bonds gained for a third straight session on Wednesday as concerns over the global growth outlook boosted the allure of the haven market.

MarketRealist: – The yield curve: An indicator of the monetary policy implications. – The yield curve is a line that plots the yields or interest rates (at a given point in time) of bonds having equal credit quality, but differing maturity dates.

 

Investment Grade Bonds

Reuters – Safeway LBO puts spotlight on need for bond protection. – Investors have been put on high alert regarding the need for covenant protection in investment-grade corporate bonds, after being rattled by this week’s US$9.4bn LBO of Safeway and last month’s scare when Time Warner Cable was saved at the eleventh hour from a hostile bid.

WSJ: – Renewed embrace of bonds sparks boom. – Highly rated companies sold the most debt this past week since Verizon Communications Inc.’s record-setting $49 billion sale last September, in the latest upbeat sign from the bond market.

WSJ: – Petrobras raises $8.5 billion from bond sale. – Petróleo Brasileiro SA raised $8.5 billion from the sale of overseas bonds on Monday as the oil company continues to borrow cash for its massive investment plan, but it is paying an increasingly onerous price, according to people familiar with the transaction.

FT: – Verizon Communications returns with $4.5bn bond sale. – Verizon Communications returned to capital markets on Monday with the sale of $4.5bn in bonds, in its first debt offer since a blockbuster corporate deal last year.

WSJ: – Corporate debt feeds yield hunger. – Global corporate bonds are in fine fettle, even as stock markets struggle to propel themselves higher. No matter the problem—whether it be jitters over China’s financial system, Russia’s incursion into Ukraine, or doubts about the U.S. recovery—corporate bonds seem to benefit. The search for yield shows no signs of flagging yet.

MarketWatch: – Uncertainty pays in a white-hot corporate bond market. – Everyone and their mother seems to be piling into the white-hot corporate bond market these days, which means opportunities can be difficult to find. But for individual investors, one place to look may be a part of the market that the big dogs of the bond market tend to ignore.

MarketWatch: – Uncertainty pays in a white-hot corporate bond market. – Everyone and their mother seems to be piling into the white-hot corporate bond market these days, which means opportunities can be difficult to find. But for individual investors, one place to look may be a part of the market that the big dogs of the bond market tend to ignore.

 

High-Yield

Bond Vigilantes: – High yield: bullish or blinkered? – I recently attended JP Morgan’s annual US high yield conference. It’s one of the best conferences around: well attended, and with more than 150 companies, panel discussions and specialist presentations. As such, the topics covered give a good flavour of the market’s latest thinking.

Reuters: – High-yield bonds draw investors as emerging debt loses them. – Shove over, emerging markets – high-yield debt has taken your place. Emerging-market bonds, star performers just a year ago, are being replaced by high-yielding corporate debt from developed markets by investors searching for yield.

IFR Asia: – Riskier refinancings surface in slower U.S. high-yield market. – The US high-yield bond market took a breather Monday with only two new announcements to contend with, but those were on the riskier side and comprised of a previously postponed deal for Global Ship Lease and another for highly leveraged logistics firm Ceva.

FT: – Strong demand for ‘junk’ bonds erodes investor protection. – Insatiable investor demand for higher yielding securities has helped push protection for buyers of junk-rated bonds to its lowest level on record, the rating agency Moody’s has warned.

Citywire Global: – Start making your HY exit plan, says $10.2bn bond manager. – JPM’s Bill Eigen has warned investors it is time to seriously consider dropping high yield exposure as spreads are nearing historically tight levels.

What Investment: – High yield bonds may be ‘too expensive for the risk involved’, warn fund managers. – Despite a run of good performance, high yield bonds generally offer poor returns for the risks involved, two prominent bond fund managers have warned.

 

Investment Strategy

The Street: – Should you fear higher interest rates? – How should you allocate your investments when interest rates appear to be heading higher?

Bank Investment Consultant: – A guide to the changing bond market. – Mutual funds. Separately managed accounts. Laddered portfolios. These are the vehicles of choice for advisors looking to put their clients into bonds.

Financial Post: – Gary Shilling: How to prepare your portfolio for the next market shock. – U.S. stocks may be headed for a blow-off as individual investors pile into the market after last year’s meteoric increase. Peaks often are reached when everyone has been sucked in. Then, a major shock could force investors to focus on the slow global economy. With U.S. growth of only about 2%, it won’t take much of a jolt to precipitate another recession, which is long overdue by historical standards.

Donald van Deventer: – The 20 best value bond trades of 20 years maturity or longer. – We find the best-value non-call senior fixed rate 20 year or longer maturity bond trades on March 10, 2014 were issued by the following firms.

Citywire: – M&G’s Woolnough: Buy bonds the day rates rise. – Leading bond fund manager is in favour of rising interest rates as it would be a bullish statement on the economy.

Duncan Rolfe: – On fixed income Strategies, and a beacon of positive light at PIMCO. – There are two alternative strategies you can implement besides traditional bonds to continue to reap the benefits of fixed income securities in your diversified portfolio: bank loan notes and high yield bonds.

Morningstar: – An Aggressive ETF Portfolio for Retirement. – We make a minor adjustment and check up on the performance of this ETF-oriented portfolio ideal for retirees with long time horizons.

 

Emerging Markets

Charles Schwab: – Emerging market bonds: Why now’s a good time to reassess the risks. – The calm in emerging market bonds was broken recently when Russian troops moved into Crimea. We think markets may be too complacent about the potential risks facing emerging market (EM) bonds in 2014.

Economic Times: – Emerging Markets top of the class despite Ukraine turmoil. –  Emerging markets hard currency debt was the best performing fixed-income asset class in February in spite of growing political tensions in several countries, most notably Ukraine and Russia.

Trading Floor: – Bond Update: Emerging markets steady despite Ukraine fears. – Markets are focused once again on the continual headline risk from Ukraine, and Emerging Market Bonds remains on subdued levels. One riskier asset class, with apparently less crisis correlation for the moment, is European High Yield Bonds. It seems that the cashflows into European markets are continuing to weigh on European bond classes, as Europe has worked as a bond fund safe haven for a while.

ETF.com: – Fed fuels doubling of EM debt. – On Tuesday, the European Central Bank released a working research paper that examines the relationship between the Federal Reserve’s quantitative easing and global bond issuance. The results are stunning. The authors conclude that emerging market corporations have issued twice as much debt as a result of QE than they otherwise would.

CNBC: – Are emerging market bonds a better deal than stocks? – Bargain hunters eyeing the drop in emerging market equities may want to shift their focus to the segment’s unloved bonds instead.

Reuters: – Emerging bonds see first net inflows since Sept. – Inflows into emerging bond funds outpaced outflows last week for the first time since September, but equity funds saw net outflows for a record 20th week, banks said on Friday, citing EPFR data.

 

Catastrophe Bonds

Artemis: – East Lane Re VI cat bond upsizes to $270m for Chubb, prices at low-end. – Catastrophe bond, sponsored by U.S. primary insurance group Chubb, has now completed at the increased size of $270m with pricing at the low-end of the previously reduced range.

 

Bond Funds

FT: – Former Jefferies bond trader convicted. – A former Jefferies bond trader was convicted on Friday of lying about the price of mortgage bonds to defraud investors, including a US government programme set up to stabilize the financial system.

Bloomberg: – Gross stumbles in legacy test as El-Erian exit distracts. – Bill Gross, musing on his legacy in an April investment outlook, contended that the real test of his greatness as an investor would be his ability to adapt to a new era of shrinking bond market returns.

LA Times: – PIMCO trustee assails exec’s salary. A longtime trustee for Newport Beach’s $1.9-trillion Pimco funds lashed out at the reported $200-million annual salary of Bill Gross, the billionaire bond guru who co-founded the giant money manager in 1971 and remains its chief investment officer.

About.com: – Two factors to consider before selling your bond funds. – In the past few years, investors have heard a steady stream of negative commentary as it relates to the bond market. With economic growth on the upswing and the U.S. Federal Reserve tapering its quantitative easing policy, the thinking goes, bond yields have nowhere to go but up. (Keep in mind, prices and yields move in opposite directions). However, bond investors need to ask themselves an important question: what are the alternatives?

ETF.com: – 5 Top-performing active ETFs year-to-date. – The ETF market is predominantly passively managed—of the 1,570 U.S.-listed ETFs today, only 84 are actively managed, with combined assets of around $15 billion. Still, several active ETFs hold their own against passive funds, and some of the best performers are actually beating their indexed counterparts so far this year. In this post we list the five best-performing active ETFs so far in 2014, in ascending order.

CNBC: – Are ETFs the Amazon.com of funds? – Over the past two decades, financial advisors, institutions and do-it-yourself investors have pumped billions of dollars into exchange-traded funds, turning what was once an obscure corner of the investment business into “the Amazon.com of the fund world,” as one expert sees it.

Reuters: – U.S. bond funds post $3.7 billion weekly inflow, biggest since May. – Investors in U.S.-based mutual funds poured $3.7 billion into bond funds in the week ended March 5, as bond yields remained stable while geopolitical tensions lingered in Russia and Ukraine, data from the Investment Company Institute showed on Wednesday.

Kiplinger: – Fund investors reveal their lousy timing. – Investors lagged the average mutual fund by an average of 2.5 percentage points per year over the past ten years. How can you do better?

 

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