This Week’s Top Bond Market Stories – March 1st Edition

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LearnBonds

LearnBonds: – Trading bonds at Vanguard – An in-depth look. – Things are changing in favor of the everyday investor.  Some brokerage firms offer bond platforms that provide an adequate selection of individual bonds at extremely low commissions and very low minimum investments. Two such firms are Vanguard and Fidelity. In this article, we will focus on Vanguard’s bond trading platform.

LearnBonds: – Detroit poised to significantly haircut G.O. bondholders. – Last Friday, Detroit filed a proposal to reduce its $18 billion debt load and exit court supervision. The proposal offers municipal pension plans 50 cents on the dollar while G.O. bondholders could receive as little 20 cents on the dollar. This may come as a shock to G.O. holders as many believed that having a general obligation gave creditors more security.

LearnBonds: – Take some target practice with defined-maturity BulletShares. – Defined maturity ETFs have developed a small but interesting niche within the bond fund universe. True to their name, these funds mature at the end of a specific year, which is typically indicated by the name of the fund. Today, I’d like to take a look at a menu of defined maturity bond ETFs from investment management firm Guggenheim, referred to as their BulletShares.

LearnBonds: – The Fed and recent bond price movements. – One of the fears that investors in bonds had last fall was that any effort to begin tapering Federal Reserve purchases would result in higher bond rates.  Let’s look at what has happened over the roughly two months since the tapering of purchases began.

LearnBonds: – Three solid income stocks for 2014. – What can a low-to-moderate-risk investor do for better income? Buy junk? You don’t have to go there. I’ve got three better ideas, three tasty dividend-paying stocks that can boost your income without taking on too much risk.

 

Municipal Bonds

Bernardi Securities: – Early 2014 municipal bond market stabilization & rally. – Municipal bond prices have benefitted from a relatively lower supply of new issuance volume, paired with the market stabilizing after the negative initial reaction to Detroit and Puerto Rico’s financial woes. Low issuance is largely driven by the rising yield curve, meaning many refinancing opportunities are not currently feasible. Additionally, as higher tax rates set in, investor demand for non-taxable income is on the rise.

Yahoo: – Scott Siegel, I Really like municipal bonds. – Anticipating the next step for bonds and equities amid rising rates, with the FMHR traders, and Scott Siegel, Morgan Stanley Wealth Management.

Bankrate: – Why buy municipal bonds through a 401(k)? – A reader asks. Can I buy municipal bonds through my 401(k)? As I look to diversify my investments, I think this is something that could be worth considering. What can you tell me about the possible pluses and minuses?

Reuters: – Sales drought to continue in U.S. municipal bond market next week. – Next week will feature three large and atypical sales of U.S. municipal bonds, as a drought of primary issuance stretches on with only $2.87 billion in new debt coming to market, according to Thomson Reuters estimates.

Bloomberg: – Puerto Rico is outlier for wealthy fleeing tax hit: Muni credit. – Financial advisers to some of the wealthiest Americans see struggling Puerto Rico as an outlier in the $3.7 trillion local-debt market, leading them to add municipal bonds as the steepest federal tax rates in more than a decade loom.

BondBuyer: – Camp tax reform plan expected to tax some muni bond interest. – House Ways and Means Committee chairman Dave Camp’s tax reform plan would slash the top income tax rate to 25% and impose a 10% surtax on certain earnings of the wealthy, including tax-exempt bond interest that is not currently taxed, according to the Wall Street Journal.

WSJ: – Head muni salesman at Goldman to join hedge fund. – The head of municipal-bond institutional sales at Goldman Sachs & Co. is joining a new hedge fund manager, seeking to take advantage of opportunities in a market that has been rattled by Detroit’s record-setting bankruptcy and fiscal problems in Puerto Rico.

Digital Journal: – League of Cities’ reaction to camp tax reform. – The National League of Cities opposes aspects of Congressman Camp’s proposal. While the proposal is an honest attempt at solving the problems of our nation’s tax code, it will have unintended consequences in many areas of cities’ operations and will reduce the ability of cities to create jobs and expand the economy.

MarketWatch: – A tax-friendly alternative to municipal bonds. – There is an often overlooked alternative for investors that could prove pivotal in helping retirees maintain their desired income on a tax-free basis.

 

Education

Yahoo: – Why high yield bonds improve portfolio returns when markets tumble. – To recognize the benefits of portfolio diversification from high yield bonds, one needs to look at the returns from various ETF portfolios and compare. The table below captures select returns in past the five years and monthly returns since December 2013. We assume that the weight of each asset is the same in the portfolio, that is, the investor has equal exposure to all the ETFs.

Morningstar: – Understanding risk factors. – The potential for sleepless nights is why investments offer expected returns in excess of cash interest rates, so-called “risk premia.” It really can’t be any other way. High-return, low-risk opportunities attract mountains of capital as fresh meat attracts piranhas, and they’re devoured just as rapidly. The result is a fairly efficient market. For the majority of investors, the only reliable way to obtain higher expected returns is to take on more risk.

TheStreet: – How to balance yield and risk in your income portfolio. – The overwhelming consensus view heading into 2014 was that interest rates were finally heading higher, giving income investors the opportunity to earn more yield from bonds.

 

Treasury Bonds

Bloomberg: – Treasury yield curve narrows as U.S. economic growth falters. – The difference between yields on two- and 10-year Treasuries narrowed for the first time in three weeks as investors questioned the pace of the economic expansion after reports showed harsh weather weighed on U.S. growth.

English People: – Don’t hype China’s U.S. T-bond trim: economists. – Senior economists have argued against reading too much into China reducing its holdings of U.S. treasury bonds in December with its biggest monthly cut in two years.

MarketWatch: – Treasurys find holding pattern ahead of debt sales. –  Treasury prices meandered lower on Monday ahead of $109 billion in planned government debt auctions.

Reuters: – Prices drop as equities rise, emerging market worries recede. – U.S. Treasuries prices fell on Monday, with some investors exiting the safe-haven asset class as Wall Street swung higher and worries dwindled about troubled developing economies such as Ukraine.

WSJ: – Treasury bonds rise on economic worries. –  Treasury bond prices rose Tuesday as concerns over the world’s two largest economies boosted the allure of the safe-haven market.

BusinessWeek: – Treasury yields touch three-week low on economy, Ukraine concern. –  Treasury 10-year note yields touched the lowest level in almost three weeks as investors weighed prospects for the U.S. economy and political turmoil in Ukraine boosted demand for safety.

Bloomberg: – Treasury floaters demand eases as dealers win larger sale share. – The Treasury’s $13 billion floating-rate note sale, the second ever for the security, drew lower demand than last month’s offering, with primary dealers purchasing a greater percentage of the securities.

 

Investment Grade Bonds

Bloomberg: – U.S. Corporate credit swaps index rises first time in four weeks. – A gauge of U.S. corporate credit risk rose for the first week in four on signs the Federal Reserve is unlikely to slow the pace of stimulus cuts.

Income Investing: – Corporate bond prices benefit as new issuance plunges. – New corporate bonds have been in short supply so far this year, even as rates retreated from where they began the year, and that’s helping boost the prices of existing corporate bonds.

Donald van Deventer: – Google Inc. Versus Apple Inc.: A bond market ranking. – On February 21, 2014, the bonds of Google Inc. were the 18th most heavily traded of any reference name in the U.S. fixed rate corporate bond market. Another iconic name in technology, Apple Inc. (AAPL), ranked 21st. This is a rare opportunity to make a bond market comparison between the two names, which normally don’t trade in such volume.

IFR: – PepsiCo launches US$2bn two-part bond. – PepsiCo Inc made a huge splash in the US high-grade market on Tuesday, offering US$2bn of three-year and 10-year bonds to an investor base keen on fresh corporate debt.

Donald van Deventer: – Goldman Sachs Group Inc. leads best value long maturity bond trades. – We find the best-value non-call senior fixed rate 20 year or longer maturity bond trades on February 25, 2014 were issued by the following issuers.

Forbes: – Cisco’s debt sale bolsters U.S. cash while adding value through share buybacks. – Cisco sold about $8 billion worth of bonds on Monday, taking advantage of low interest rates to raise cheap debt and finance share buybacks. The company issued debt in seven tranches of fixed- and variable-rate securities, with maturities varying from 18 months to 10 years, in what was its first such offering in three years.

 

High-Yield

Investment Week: – Why this strategic bond fund launched with 70% high yield. – Nordea’s recently launched strategic bond fund has a 70% allocation to high yield bonds in a bid to emphasise credit exposure and minimise interest rate risk.

IFR: – U.S. high-yield quiet but tone remains upbeat. – US high-yield primary activity was quiet on Monday but supply is expected to pick up with a positive market reaction to more M&A news reinforcing a firm tone in credit markets.

Businessweek: – Junk premiums drop to lowest since 2007 in Europe on sales slump. – The premium investors demand to hold high-yield corporate bonds in euros rather than government debt fell to the lowest in more than six years as a dearth of new issues pushes up prices.

Bloomberg: – Goldman’s Gmelich likens junk loans to one-way freight train. – Investors who have been pouring money into funds that purchase leveraged loans need to be wary of a reversal in demand, according to Justin Gmelich, the head of credit trading at Goldman Sachs Group Inc.

Forbes: – High Yield ETFs: It’s more than fees that matter. – High yield ETFs have repeatedly underperformed actively managed mutual funds. As of January 31, 2014, the average five year annualized return of the Morningstar US actively managed funds ETF High Yield universe was 13.99%. By comparison, the Morningstar High Yield mutual fund universe of actively managed funds returned an average of 15.18%.

Businessweek: – J.C. Penney bonds reach highest in seven weeks in profit revival. – Bonds of J.C. Penney Co. (JCP:US) climbed to the highest level in seven weeks as the retailer made its first profit in more than two years.

MoneyBeat: – Low tide for high-yield defaults. – Ultra-low interest rates and a rush of money into bond markets seeking returns: times should be good for high-yield borrowers. Indeed, they are. Maybe, though, they’re a bit too good.

 

Investment Strategy

USA Today: – What’s safer: Individual bonds or funds? – Contrary to popular belief, both bond funds and laddered individual bond portfolios have identical risk.

Trustnet: – Why bonds and gold should be back on your radar in 2014. – The manager of the £8.6bn Newton Real Return fund says that high equity prices mean that traditional safe haven assets will reassert their true value this year.

abc News: – Bold bond moves to make now, before it’s too late. – Bonds are widely viewed as a low-risk investment that can fortify overall portfolios against the ups and downs of stocks. Yet, while they can reduce risk to portfolios through diversification, bonds themselves present risks that most investors aren’t aware of.

About.com: – Bonds aren’t as safe as they used to be, but they still provide portfolio stability. – The past few weeks have brought an uptick in the number of readers writing in to ask whether bonds can still be used as an “anchor” within the context of a portfolio invested in stocks, bonds, and other asset classes. Bonds’ ability to stabilize overall portfolio performance is typically one of their key attributes.

ETF.com: – Why investors repeat mistakes. – So you learned you weren’t smarter than the stock market, but still think you’re smarter than the bond market?

 

Emerging Markets

The Street: – Downgrade alone won’t kill an emerging market. – While few investors are rushing to pour money into Ukraine bonds or shares, a major downgrade may not be the deciding criterion.

MoneyNews: – Explosive growth in emerging market bonds may end in crisis. – Emerging market bonds have mushroomed in size over the past few years, as bonds have been used to finance the fledgling economies’ heady growth.

Morningstar: – Credit markets finish retracing emerging-markets sell-off. – At current levels, credit spreads are at the tight end of the range that we consider fairly valued, leaving only modest room for additional tightening.

Bloomberg: – Fidelity to DoubleLine dodge currencies: Riskless return. – Fidelity Investments’ John Carlson and DoubleLine Capital LP’s Luz Padilla pursue different strategies in their emerging-market debt funds. One thing they have in common is buying bonds denominated in U.S. dollars.

Institutional Investor: – Emerging economies could see calmer days ahead. – As the so-called fragile five economies recover from a January rout, money managers like the prospects for emerging markets stocks and bonds.

DealBook: – Paper warns of exodus from emerging market bond funds. – Low interest rates have incited a craze for risky bonds in fast-growing economies, and few fund companies have been more adept in meeting this demand than Pimco, the world’s largest bond manager.

Kiplinger: – Buy emerging-markets bonds. – If you’re willing to take some risk with part of your income portfolio, you can find a number of well-run, no-load emerging-markets bond funds.

 

Catastrophe Bonds

Artemis: – The catastrophe bond yield advantage. – The return advantage provided by an investment in catastrophe bonds, over an investment in other forms of yielding debt instrument, has narrowed over the last two years, largely due to pricing pressure lowering yields on cat bonds more quickly.

The Current: – Possible cat fund purchase of private reinsurance sparks backlash. – Officials with the Florida Hurricane Catastrophe Fund, the state reinsurance fund, are considering a proposal to buy up to $1.5 billion of reinsurance on the private market, with the likely effect of small rate increases for homeowners.

 

Investment Strategy

Market Realist: – Why worry when you can hedge your fixed income portfolio? – The chart below shows how different exchange-traded funds (or ETFs) react differently to market interest rate changes depending on their sensitivity—that is, the degree of interest rate risk associated with securities in their portfolio.

Fox Business: – 4 Investments with higher yields and risk. – While none of the high-yield options out there are risk-free, and many are considered high risk, some alternatives exist that can help retirees reach their income goals. Following are four popular investments with higher yields.

 

Bond Funds

Investment Europe: – Three bond scenarios could play out in 2014, says AXA IM’s Nick Hayes.  – Nick Hayes, manager of the AXA WF Global Strategic Bonds fund at AXA Investment Managers, has outlined three scenarios that could affect the fixed income market through 2014.

WSJ: – Cash flies into bond ETFs. – Investors are piling into exchange-traded bond funds at the fastest clip ever, the latest sign of a bond-market revival driven by uneven economic data, emerging-market volatility and the thirst for income-generating investments.

ETF Trends: – Bond ETFs: The new black. – After being punished by soaring Treasury yields in 2013, some bond exchange traded funds are the toast of the town in 2014.

Rick Rieder: – 3 Reasons to stay flexible in your bond portfolio. – The start of 2014 has continued this pattern of volatile activity- rates are actually lower today than they were at the start of the year and the outlook for bonds remains uncertain. So what should investors expect from here? And how can they position their portfolios?

ETF.com: – Shiffer: More fixed-income ETFs needed. – Heather Bell sat down with Jonathan Shiffer, vice president and portfolio manager at Denver-based Curian Capital, to chat about how his firm uses ETFs and what he’d like to see in terms of new launches.

The Globe and Mail: – Bond market faces a tougher 2014. –  Record levels of corporate borrowing boosted the fixed-income markets to unforeseen highs in 2013, but the party’s not likely to last another year.

Bloomberg: – ETF Appetite for fixed income diminishes on reduced money flows. – Exchange-traded funds that buy bonds in the U.S. are losing out to equity ETFs as investors move toward riskier assets, signaling confidence in the strength of the economy.

FE Trustnet: – Are you buying top-performing bond funds for the wrong reasons? – Bond funds that have been prepared to take on more risk have prospered from a relative point of view recently, but they could be set for tough times ahead in a risk-off environment.

WSJ: – Janus launches multi-sector income fund. – Janus Capital Group Inc. (NYSE:JNS) today announced the launch of the Janus Multi-Sector Income Fund that seeks to identify compelling income-generating opportunities across fixed income sectors. The fund, which launched on Feb. 28, 2014, will be managed by Janus Capital Management LLC.

Zacks: – Zacks #1 Ranked government bond mutual funds. – We share with you 5 top rated government bond mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect these mutual funds to outperform their peers in the future. To view the Zacks Rank and past performance of all government bond funds.

 

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