This Week’s Top Bond Market Stories – March 8th Edition

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LearnBonds

LearnBonds: – One lesson for bond bears: Bond spreads matter. – Perhaps you’ve heard the phrase, “There’s always a bull market somewhere.”  That phrase doesn’t just refer to individual stocks.  It can refer to individual bonds as well.

LearnBonds: – Money, it’s a gas (and cheap). – If investors insist on investing in credits rated below B, we suggest selecting bonds with maturities inside two years as rate should remain low enough to suppress corporate defaults within that time period. CCC exposure should remain within three years and B-rated investments within five years. We try to keep our BB exposure inside seven years.

LearnBonds: – An evaluation of Vanguard Total Bond ETF (BND). – Holding over 6000 bonds and a possessing a minuscule 10 basis point management fee, the behemoth Vanguard Total Bond Market ETF, ticker BND, is often referred to as a one-stop shop for investment grade fixed-income investors. In this article we’ll take a look at some of the critical vitals and yield and give an evaluation of Vanguard Total Bond ETF in an attempt to decipher if it is a worthy portfolio solution or not.

LearnBonds: – Bond risk on and bond risk off! – John Mason talks about international flows of funds into and out-of sovereign bond markets around the world. As investors get shaky about the “climate” surrounding the debt of a county or a region, they flock out of that debt and into the debt of another country or region.

 

Municipal Bonds

Reuters: – Puerto Rico debt woes choke bond supply for some municipal funds. – The downgrade of Puerto Rico’s debt to junk status earlier this month has resulted in a rough ride for some municipal bond funds that focus on the debt of specific states.

BondBuyer: – February muni volume lowest since 2000. – Driven by a continued steep decline in refundings, long-term municipal bond issuance remained paltry, with the lowest February volume since 2000.

Albuquerque Business First: – NM municipal bond projects surged in 2013. – New Mexico’s municipal bond market saw a nice increase last year over 2012, increasing by 10 bond issues and a 40 percent boost in dollar volume.

Daniel Silliman: – Creationists sell enough junk bonds to build an ark. – Against formidable odds and with dubious financials, Ark Encounter LLC has raised sufficient funds to start building a 510-foot replica of the most famous boat in the Bible.

BusinessWeek: – Chicago cut to three steps above junk by Moody’s before sale. – Chicago’s credit rating on $7.8 billion of general-obligation debt was cut one level to Baa1 by Moody’s Investors Service, which cited “massive” pension liabilities for the third-most populous U.S. city.

BondBuyer: – Obama again proposes 28% cap, AFF bonds in fiscal 2015 budget. – President’s Obama $3.9 trillion fiscal 2015 budget, released Tuesday, proposed capping the value of the tax exemption for municipal bond interest at 28%, which market participants complain would amount to an unprecedented tax on municipal bonds.

Reuters: – Puerto Rico hires restructuring expert as financial adviser. – Puerto Rico’s Government Development Bank has hired a restructuring expert to evaluate potential funding sources and financial proposals for the bank and commonwealth, it said on Wednesday, less than a week before the commonwealth’s expected multi-billion dollar municipal bond offering.

ValueWalk: – Puerto Rico munis SWOT analysis. – Puerto Rico is expected to issue $2 – $3.5 billion in general obligation (GO) bonds later this month, the latest since a $2.7 billion offering in 2012, and with all the attention on the island’s credit rating over the last six months both traditional muni investors and new investors are expressing interest in the GO bonds.

ETF Trends: – California muni ETFs plays as state plans $1.6 bond sale. – California is set to offer the largest general-obligation municipal bond sale since October. Investors interested in gaining targeted exposure to Californian muni debt can take a look at a couple exchange traded fund options.

 

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

Donald van Deventer: – Treasury forecast: A sharp drop this week and a 7% scenario for Treasuries In 2017. – The latest implied forward rate forecast from Kamakura Corporation shows projected 10 year U.S. Treasury yields down 0.11% to 0.18% from last week while fixed rate mortgage yields are 0.01% to 0.04% higher.

FT: – U.S. inflation expectations boost Tips demand. – U.S. inflation expectations for the next five years rose to their highest level in seven months on Monday, as investors believe the inflation-linked bond market is underplaying a prospective pick up in consumer price pressures.

Nasdaq: – TIP: ETF outflow alert. – Looking today at week-over-week shares outstanding changes among the universe of ETFs covered at ETF Channel , one standout is the iShares TIPS Bond ETF where we have detected an approximate $22.5 million dollar outflow.

ValueWalk: – Net short positions in Treasuries still very large. – According to Royal Bank of Scotland traders Jim Lee and Nicholas Kirschner, the net short speculator position in 10 year futures equivalents fell $8.71 billion to $37.30 billion, the first fall since January 7, 2014. Longs in 10-year Treasury note futures (TY), 5-year Treasury note futures (FV), and Fed Funds and short covering of positions in Treasury bond futures longer than 15 years (US) and TY triggered the net short position decrease.

The Federalist: – Putin adviser threatens to dump U.S. Treasury Bonds in response to sanctions. – An adviser to Russian President Vladimir Putin said Tuesday that authorities would issue general advice to dump US government bonds in the event of Russian companies and individuals being targeted by sanctions over events in Ukraine.

WSJ: – Treasury bonds pull back on drop in jobless claims. – Treasury bond prices fell as the latest labor-market release boosted optimism over the economy and sapped demand for the safe-haven market.

 

Investment Grade Bonds

FT: – SEC probes Goldman and Citi bond allocations. – The Securities and Exchange Commission is investigating the way investors are given allocations of bonds in sought-after offerings, such as the Verizon Communications issue, according to people familiar with the matter.

Income Investing: – Goldman: Corporate bond spreads still above 90-year average. – Goldman Sachs says that the corporate bond spread basically serves to compensate corporate bond investors for default risk, but Goldman notes that risks like liquidity risk and expected loss are also embedded in there.

WSJ: – High-grade firms dive in debt market. – Highly rated companies sold about $19.5 billion of bonds in the U.S. on Tuesday, the busiest day of the year, as corporations took advantage of a recent rally in benchmark U.S. Treasurys to lock in low rates.

WSJ: – Deluge of corporate bond issues continues for second day. – About a dozen high-grade companies are selling roughly $18 billion in debt on Wednesday, extending a spree of bond sales that began with Tuesday with the busiest day of the year for new debt sales in the U.S.

FT: – Companies rush to sell debt amid blockbuster week. – A rush by companies to sell bonds has led to a blockbuster week of issuance in the US, with investors scrambling to put money to work as the prospect of military conflict over Ukraine recedes.

 

High-Yield

Bonddad Blog: – Junk bonds continue to rally; Junk spreads continue to narrow. – This chart of the junk bond ETF shows that investors are still reaching for yield. It shows that investors are still very bullish.

Forbes: – High yield bond fund cash inflow dwindles To $559M. – Retail-cash inflows to high-yield funds totaled $559 million in the week ended Feb. 26, according to Lipper. This is the third consecutive inflow, but the lowest over that span following an $804 million inflow last week and $1.45 billion in the week prior.

Investopedia: – High times ahead for high yield bonds. – As the Fed has kept interest rates at persistently low levels, investors have shown a penchant for anything that kicks off a high dividend. Master limited partnerships (MLPs), real estate and dividend paying stock funds- like the Guggenheim S&P Global Dividend Opportunity ETF have become portfolio necessities as investors try to navigate these uncharted waters.

FT: – Junk bond rally approaches end of line. – Junk bonds have been set ablaze in both popularity and success as benchmark rates fell to rock bottom, and the cheap capital provided a lifeline for companies with fragile balance sheets. But after a multiyear rally, fund managers and analysts are asking whether junk bonds are approaching the end of the line.

Pragmatic Capitalism: – Marks & Gundlach: Beware junk bonds. – There’s been some cautionary commentary in recent months from some bond market heavyweights.  Most notably, Howards Marks and Jeff Gundlach.  In a Bloomberg interview today, Marks said you need to be cautious about low quality issuers.

Bloomberg: – Banks enriched by junk resist U.S. regulator standards. – More than five months ago, the Federal Reserve and Office of the Comptroller of the Currency told some of the biggest banks to improve underwriting standards for non-investment-grade loans. The market is showing few signs of tightening as lenders chase lucrative fees.

Bloomberg: – Are High-yields the place to be for bonds? – ING Investment Management Lead Portfolio Manager U.S. Credit Strategies Tim Dowling discusses playing both aspects of the bank “clean up” story. He speaks to Anna Edwards and Mark Barton on Bloomberg Television’s “Countdown.”

FT Adviser: – Keep an eye on the exit for high yield. – Given the deluge of macro worries raining down on markets at present, it is perhaps all the more impressive that high-yield bond spreads continue to grind tighter.

IFR Asia: – Mining-related firms see mixed fortunes in US high-yield. – Canadian mining company Imperials Metals Corporation’s debut high-yield bond flew off the shelf on Thursday on the back of a US$3bn-plus order book as investors clamored to buy a rare new name in the under-supplied high-yield bond market.

 

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.

 

Emerging Markets

Forbes: – Emerging market banking crises are next. – The good times were very good for emerging markets prior to mid-last year. Capital inflows led to currency appreciation which provided the liquidity for domestic investment and consumption booms. But the beginning of QE means the good times have come to an end and it’s the banks that will suffer.

MNI News: – No broad emg mkt crisis despite Ukraine. – While developments between Russia and Ukraine are feeding negative sentiment in European stock markets and flight to quality out of Russia, Aberdeen Head of Emerging Markets and Sovereign Debt Brett Diment sees investors’ differentiation as a key factor preventing a widespread crisis.

Professional Planner: – Emerging markets and Europe offer opportunities to fixed-income investors. – Today’s uncertain fixed-income market environment is providing opportunities for investors who are prepared to accept more risk in exchange for higher potential returns, global asset manager AllianceBernstein said today.

Reuters: – IMF unveils investors behind emerging market debt boom. – Big institutional investors account for 80 percent of the half a trillion dollars foreigners have plowed into emerging market sovereign debt in the last few years, according to an analysis by International Monetary Fund economists.

Bloomberg: – Emerging world poses more danger than in 1990s. – Developed economies are less resilient to an emerging-market shock than they were in the 1990s, when crises from Thailand to Russia rattled investors without triggering a global recession.

Business Insider: – Money is still pouring out of emerging markets but Australia should be OK. – ANZ’s latest Portfolio Flow report has just hit the inbox, and it shows once again that funds are leaking from emerging markets, and at an accelerating rate.

 

Catastrophe Bonds

Artemis: – Gator Re catastrophe bond grows to $200m, price guidance down. – First time catastrophe bond sponsor American Strategic Insurance Group is set to enjoy the attractive cat bond issuance and rate environment as its Gator Re Ltd. cat bond upsizes to $200m while price guidance was lowered to below the initial range.

Artemis: – The logical place for catastrophe risk is the capital market. – The logical place for peak natural catastrophe risks lies in the global capital markets, not the traditional reinsurance market, according to Samir Shah, Chief Reinsurance Officer of insurer AIG.

Westport Now: – Catastrophe bond expert: Wrong partner could be disaster. – Westporter John Seo, who now makes a pretty good living at gauging the risk of catastrophic events, told a Westport Library audience tonight choosing the wrong entrepreneurial partner could be a disaster. He said his path to becoming one the world’s experts at what he does was not an easy one.

 

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.

Investing.com: – It’s all about asset reallocation. – One factor that can serve as a tailwind to a positive equity market is investors repositioning their investment portfolios from a too-much-fixed-income allocation into a larger equity allocation.

Cliff Smith: – Tactical bond strategy for rising Treasury rates. – Yes, the market seems to be continuing its bullish trend (as of the close of March 5, 2014), and as long as it does, we want to be in equities in some degree. But we must be prepared for the inevitable: a bear market is coming.

Wall St Cheat Sheet: – 3 Reasons to keep your bond portfolio flexible. – There are three important factors that will have a major impact on the way that investors should think about bond investing in the coming year — and, hopefully, help investors avoid any unnecessary losses.

 

Bond Funds

Seattle Times: – Bond mutual funds hot with investors again. – Bond mutual funds attracted $2.9 billion in the week ended Feb. 19, the Investment Company Institute said, the highest contribution to bond funds since last May.

Kiplinger: – 4 Bond portfolios for more income, less risk. – To help you weather this uncertain market, we’ve assembled seven bond-fund portfolios designed to pay more than you can get from the bank while keeping duration (a measure of interest-rate risk) in check.

WSJ: – Some new bond funds take in big bucks. – A year of turmoil in the bond market didn’t stop some fund companies from rolling out a host of new bond vehicles—and some attracted a lot of cash.

ETF Trends: – Bond ETFs help investors navigate changing market tides. – Fixed-income assets are making a comeback as investors turn to safer, more conservative plays in response to rising volatility in the equities market. Specifically, more people are turning to fixed-income exchange traded funds as their go-to investment vehicle.

WSJ: – Tuesday’s bond selloff came with massive ETF redemptions. – Tuesday’s sell off in the bond market coincided with massive withdrawals from U.S. fixed-income exchange-traded funds.

BusinessWeek: – ETF investors spurn bonds with $7.3 billion leaving fixed income. – Investors are pulling money out of exchange-traded funds that buy bonds in the U.S., with the biggest outflows from government securities as they shift into stocks, signaling a willingness to delve into riskier assets.

Donald van Deventer: – The 20 best value bond investments for maturities of 10 years or more. – Tuesday’s sell off in the bond market coincided with massive withdrawals from U.S. fixed-income exchange-traded funds.

 

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