This Week’s Top Bond Market Stories – March 29th Edition

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LearnBonds

LearnBonds: – Check out these 5 brand new 10-year bonds. – In recent weeks, numerous companies have issued brand new debt with maturities ranging from just a couple of years all the way out to 30 years.  For readers who don’t have easy access to up-to-date bond information, I’d like to share a selection of the recently-issued intermediate-term notes now trading on the secondary market.

LearnBonds: – Long term rates locked-up in chains? – Investors often misunderstand that when the Fed is raising policy rates, all rates must rise. Although it might appear this way at the beginning of a policy-tightening cycle, rising short-term rates often result in stalling and, eventually, declining long-term interest rates. The cycle typically plays out as follows.

LearnBonds: – Choosing between a bond and a dividend growth stock. – For investors, the building of a solid, diversified portfolio is all about choice. Types of choices range from the big picture kind, including the percentage of an overall portfolio pie that will be allocated to specific asset categories, as well as smaller picture choices including investment decisions between similar and not-so-similar securities. One of the major choices that an income investor may be considering today is the choice between a corporate bond and a dividend growth stock.

LearnBonds: – Why everyone must own these 12 dividend paying stocks. – According to the classic advice given by financial planners, your retirement plan was supposed to  be a “three-legged stool,” consisting of a company pension , Social Security and personal savings.   It’s looking pretty clear to me you can’t count on anything better than a pogo stick, because two of the those three legs are gone or going. So how can you make up the difference.

LearnBonds: – Three dividend paying stocks. – Ben Franklin had it right when he said there are only two certainties in life:  death and taxes.  Admittedly, I’m no Founding Father, but in my view there is a trio of exceptionally well-managed, publicly traded companies whose products are so fundamental to the way modern man lives that, if not existential certainties, are darned close to it.

 

Municipal Bonds

Reuters: – Lipper winners answer the muni bond riddle. – One could forgive municipal bond investors for being confused. While the average muni bond was down 2.6 percent in 2013, making it one of the worst-performing bond sectors this year, munis are already up 3.1 percent through March 19, making it one of the best.

Reuters: – Prisons and an airport to dominate $4.9 bln muni week. – Two large municipal bond deals for prisons in California and an airport in Atlanta will make up over a third of the $4.87 billion in new issuance next week as deals remain subdued for a second week running.

Bond Buyer: – Fund managers eye economy as they set 2nd quarter strategy. – Municipal portfolio managers are keeping a wary eye on the economy as the second quarter approaches.

Reuters: – Municipal bond represent compelling value in the current environment. – Schroder’s fixed-income portfolio manager says that municipal bonds are one of the most compelling relative value opportunities in the fixed-income market.

Gary Gordon: – 3 Reasons top earners should favor high-yield muni ETFs. – Many fear that rising interest rates will crush income-oriented portfolios. Get over it – that was last year’s news. In fact, the vast majority of high-yielding assets have been the best performers of 2014, including utility stocks, REITs as well as long-dated U.S. Treasuries.

Bloomberg: – Detroit water, sewer bonds downgraded deeper into junk. – Detroit’s water and sewer bonds were dropped five levels to CCC from BB- by Standard & Poor’s — its fifth-lowest grade — citing a possible default as the city goes through the largest U.S. municipal bankruptcy.

Philly.com: – NJ housing agency defies Moody’s ‘junk’ rating. – Moody’s Investors Service has cut bond ratings on $53 million of New Jersey Housing and Mortgage Finance Agency bonds by one notch, to Ba1 — junk-bond status, off-limits for some insurance companies and other fastidious investors.

Bloomberg: – Scores of Puerto Rico trades sub-$100,000 voided by dealers. – Scores of trades in bonds Puerto Rico issued this month have been canceled by dealers, including some that were under the $100,000 minimum transaction level stipulated in deal documents, data compiled by Bloomberg show.

Think Advisor: – How tax efficient is your muni bond portfolio? – Investors typically think of municipal bond products as being tax-free. However, in many cases, that is not the reality.

 

Treasury Bonds

WSJ: – Treasury bonds rise for fifth session. – Treasury bonds gained for a fifth straight session on Friday on worries about geopolitical tensions arising from the crisis in Ukraine.

Bloomberg: – Treasuries hold two-day drop before Fed meets on taper, guidance. – Treasury 10-year notes held two days of declines before the Federal Reserve begins a meeting at which analysts forecast policy makers will decide to further scale back purchases of government bonds.

Market Realist: – Investors are interested in the long end of the Treasury curve. – Many investors fled from riskier assets, including high yield bonds and emerging market stocks on the face of prevailing tensions in Ukraine, resulting in movements towards safer long-term government bonds.

Market Realist: – Do mortgage rates follow movements in Treasury yields? – We are entering a new world where interest rates will not be so predictable. This is just something that all participants in the bond and money markets are going to have to accommodate.

St Louis Post: – Foreign grip loosens on Treasuries as U.S. investors buy. – Overseas creditors such as China and Japan enabled the U.S. to spend its way out of the recession as they gobbled up 80 percent of the nation’s Treasuries. Now, their holdings are dropping toward the lowest level in a decade, while homegrown investors have picked up the slack.

Business Recorder: – Treasuries yield curve flattens. – The U.S. Treasuries yield curve flattened on Monday, with long-dated debt prices gaining while intermediate-dated debt prices pared losses, before the US government sells $96 billion in new debt to investors nervous that the Federal Reserve may raise interest rates sooner than expected.

Income Investing: – U.S. bonds extend gains; durable goods data raises questions. – Treasury prices climbed as economic data release today raised questions about the pace of economic growth.

 

Investment Grade Bonds

FT: – Global banks race to issue debt in first quarter. – Global banks have been aggressive borrowers in the first quarter of 2014, taking advantage of low funding costs and demand for high-quality corporate debt to push bond sales in the US to record levels.

Reuters: – Corporate bond markets in EMEA and U.S. changed by financial crisis. – Non-financial corporate bonds now make up a much larger part of the overall larger universe of outstanding corporate bonds compared with before the financial crisis in both EMEA and the US, Fitch Ratings says in a new quarterly report.

Morningstar: – Credit market outlook: Bonds priced for the benign. – Corporate credit spreads are fairly valued–albeit at the tight end of the range that we view as fairly valued.

 

Junk Bonds

Bloomberg: – Number of risky issuers signals low default rate, Moody’s says. – The number of U.S. companies at greatest risk of failing to repay debt obligations is holding at about the average of the last two years, signaling that the default rate will remain suppressed, according to Moody’s Investors Service.

Income Investing: – Junk bond risk-reward ‘not attractive’ amid rate volatility. – Citi credit strategists Michael Anderson, Angel Jia and Lina Lavitsky today look at the high-yield market’s stability during this week’s Fed-induced market hiccup. Citi says high yield’s resiliency is unlikely to be sustained, saying investors “should recalibrate their expectation of monetary support after this week’s meeting.”

Investorplace: – It’s time to sell high-yield bonds. – High-yield bonds have been an outstanding investment in recent years, but investors would do well to look forward, not back, when assessing the outlook for the asset class. At this point, the potential rewards are no longer compensating investors for the risk.

Mitch DeVan: – 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.

Market Realist: – High-yield bonds and stocks’ performance over the past 3 years. – High-yield fixed income ETFs like JNK and HYG have provided total returns in excess of 25% over the past three years. While high-yield bond ETFs like HYG and JNK have performed well in the past three years, why has the short interest ratio for these ETFs suddenly risen to record highs?

Market Realist: – How credit risk equations change for high yield bond ETFs. – The low yields on investment-grade fixed income securities was partly responsible for forcing investors to put their money into non–investment grade bonds, as high-yield bonds offer a higher yield compared to investment-grade bonds since they’re rated riskier securities.

 

Emerging Markets

Gary Shilling: – Buy sheep, avoid goats of emerging markets. – Since the start of 2014, investors have fretted over emerging markets. And they should. Early in this economic recovery, investors repelled by low returns in the developed world leaped for the stocks and bonds of emerging markets, whose markets promised faster growth.

FT: – China woes yet to scare off bond investors. – Another week, another batch of weak economic figures out of China – this time from the manufacturing industry.

ETF Trends: – Warming up to Brazilian bonds with ETFs. – Brazilian assets and related exchange traded funds experienced a huge sell-off over the past couple of months. Now, some fund managers are taking a second look at the developing market as cheap valuations begin to look enticing.

Reuters: – More Stock- and bond-picking opportunities in emerging markets. – Fitch Ratings says that a less supportive technical and macroeconomic environment in emerging markets provide more opportunities for active stock and bond investors.

iShares Blog: – Are emerging market bonds worth the risk? – As the deteriorating situation in Ukraine rattles global markets, Matt Tucker examines the fixed income side of the story, taking a closer look at the conflict’s impact on the overall bond market.

Herald Online: – Bargain hunters starting to take a close look at emerging market debt, says Market Vectors’ Fran Rodilosso. – Bargain hunters are slowly moving back into emerging market (EM) debt, with local currency funds recently seeing their first net inflows in more than nine months, says Fran Rodilosso, fixed income portfolio manager for Market Vectors ETFs.

 

Investment Strategy

Bernardi Securities: – The problem with waiting for the “Fed” to raise rates. –  Following Janet Yellen’s recent testimony, many investors may just want to wait for Federal Reserve policy makers to raise interest rates before committing money to the bond market. After all, the fed funds rate has been held in the 0% to 0.25% range for years so rates must go up, right?

Barron’s: – Go active for bonds, but index your stocks. – Much ink has been spilled in the active-versus-passive debate, and there’s no shortage of academic research in the mix—most of it demonstrating that very few active managers consistently outperform their benchmarks.

JS Online: – Now is not the time to bail on bonds, Robert W. Baird executive says. – It might be tempting to abandon bonds, but it wouldn’t be prudent, says a fixed-income analyst at Robert W. Baird & Co.

ETF Trends: – Hedge against market turns with short-term bond ETFs. – Investors have used fixed-income assets and bond exchange traded funds to help cushion the shocks in the riskier equities market. However, as we look to a longer time horizon, the diversification effects of bonds begin to diminish.

ETF.com: – Rick Ferri: 3 Big questions to ask an advisor. – Investment advisers are everywhere. There are thousands of them. Finding one that’s right for you is a challenge. How do you find an adviser that fits your needs? I’ve read articles that provide 20 questions, 10 questions, etc. Here are my “3 Big Questions” to narrow the adviser universe down to a manageable list of potential candidates.

 

Catastrophe Bonds

Financial Express: – Catastrophe bonds: An idea whose time has come. – Adopting new technology may be challenging and even disruptive. But it has been proved that the future belongs to those who anticipated change and prepared themselves for challenges to stay ahead of the curve.

 

Bond Funds

News Observer: – Andrew Silton: How to evaluate pricing, performance of less liquid mutual funds. – Over the past year, most of you have enjoyed perusing your brokerage or 401(k) statement because the balances are rising. While you may not yet have enough money to retire, at least you have more money than you had a year ago.

Minyanville: – Treasury ETFs diverge in two fundamental directions. – The initial reaction to Janet Yellen’s comments last week bode well for long-term Treasury bonds, but investors should prepare themselves for ongoing shifts.

About.com: – The story of PIMCO (and why you should pay attention). – Why is the legendary bond fund manager, Bill Gross, and his mutual fund company, PIMCO, in financial news lately? Why does it matter? Mutual funds, especially those that are actively-managed, are about more than just performance; they are about the manager(s), especially when the fund manager is a central figure of the mutual fund company.

WSJ: – Long-term mutual fund inflows $3.43 billion in latest week, ICI says. – Long-term mutual funds reported estimated inflows of $3.43 billion in the latest week as investors added more money to bond and hybrid funds than they pulled from U.S. equities, according to the Investment Company Institute.

Cincinnati.com: – Ready for lower bond values? – The recent news from the Federal Reserve Bank has been clear: Believe it or not, interest rates will actually be allowed to move higher sometime in your lifetime. As rates gradually rise, the bond portion of your investments will take on more risk, so caution is called for. Are you and your money prepared?

 

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