This Week’s Top Bond Market Stories – May 17th Edition

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LearnBonds

LearnBonds: – Bond market bears should bear this in mind. – Whether you are a market strategist calling for higher yields or an investor who believes and/or fears that any day now rates are about to soar, here are several things to keep in mind as you shape your future bond-market perspectives.

LearnBonds: – Is there value in municipal closed end funds? – Though investors considering municipals may be content with yields on individual issues, the closed-end market currently offers elevated yields of as much as 7% in funds utilizing leverage and trading at a discount to net asset value. In a recent search I conducted on CEFconnect.com, I found 200 municipal closed end funds available for purchase.

LearnBonds: – Portfolio diversification. – Portfolio diversification is a risk management technique by which investors minimize their portfolio risk by combining a variety of assets. Diversification tries to smooth out unsystematic risk events in a portfolio, and moderate the short-term effects of individual investments, so that the positive performance of some assets will neutralize the negative performance of others.

LearnBonds: – Alcoa – Respectable buy on a return to profitability. – Alcoa (AA) , a world leader in aluminum,  celebrated its 125th anniversary in 2013 with a downer:  a 2.8 percent drop in revenue and losses of $2.43 per share.  The consensus on Wall Street is that the company will return to profitability in 2014, but the question is: is the stock priced right?  From my perspective, this venerable stock is a decent, if not thrilling BUY.

  To see a list of high yielding CDs go here.  

 

Municipal Bonds

BondBuyer: – Market Post: Reinvestment will start ‘food fight’ for munis, investors say. – Demand for municipal bonds will remain high through May and June, investors predict. “There’s going to be a food fight for any issuance that is coming,” a trader in Virginia said.

Bloomberg: – Dulles airport operator sells bonds for new metro line. – Travelers arriving at Dulles International Airport in northern Virginia will have a new option to get to downtown Washington — a direct transit line, partly financed by municipal bonds this week.

Businessweek: – Puerto Rico yields rise to three-week high after revenue slumps. – Puerto Rico bond yields set a three-week high after the U.S. territory said revenue collections for July through April trailed projections.

The Republic: – Firm that did state-commissioned report on 38 Studios bond default to go before House panel. – Providence, Rhode Island — An outside firm that predicts Rhode Island’s bonds will sink to junk status if the state defaults on the 38 Studios debt is going before a legislative panel.

Reuters: – Puerto Rico junk bonds dominate U.S. municipal trades. – Trading of the $3.5 billion bonds Puerto Rico issued in the middle of March, the largest U.S. municipal junk bond sale in history, has been fast and furious.

ETF Strategy: – First Trust launches actively managed municipal bond ETF. – First Trust, a leading provider of exchange-traded funds, has unveiled an actively managed ETF providing exposure to tax-exempt municipal debt securities, while offering daily liquidity and full transparency of holdings and pricing.

 

Treasury Bonds

Business Recorder: – Long bond drops after 30-year bond auction. – Thirty-year Treasuries sat out a modest US bond market rally and dropped on Thursday after the government sold $16 billion of new long bonds at unexpectedly high yields. The 30-year auction, the last of three this week by the Treasury Department selling $69 billion of new debt, came with a high yield of 3.440 percent, or over two basis points more than the market level signalled just before the auction.

Minyanville Pro: – Long-term Treasuries caught the haven bid. – If Russian money flowed back into Treasuries or if flight capital from elsewhere flowed into Treasuries, it seemed to be going into the long end of the yield curve, the last refuge of positive real returns.

Reuter: – U.S. data drives yields lower as new economy fears set in. – U.S. Treasurys yields fell on Tuesday after U.S. retail sales for April came in below economists’ expectations, which could temper hopes of a sharp acceleration in economic growth in the second quarter.

David Cretcher: – The case for owning Treasuries. – Treasury bonds are on the top of many investors list of worst future investments. With the Fed slowing their purchases of the securities, the logic says that interest rates must move higher. But for contrarian investors, the data shows a different scenario and a possible profit opportunity.

FT: – Russia dumps a fifth of its U.S. Treasuries. – Russia has offloaded a fifth of its holdings of US Treasury debt in March at a time of heightened speculation that its assets would be frozen as part of sanctions over the crisis in Ukraine.

Market Realist: – Why the market sees a subdued demand for 30-year Treasury bonds. – The demand for 30-year Treasury bonds remained subdued as seen in the bid-to-cover ratio of 2.09x. The auction size was higher at $16 billion from $13 billion in the April auction. So whats happening?

 

Investment Grade Bonds

MarketWatch: – Corporate bond rally is next to bust, some fear. – A growing group of investors and analysts are souring on the corporate bond market, preparing for a reversal in an asset class that has benefited tremendously from investor dollars hunting for yield.

Morningstar: – Apple bonds yield more than Spanish debt. – When Apple issued a bond in Spring last year, it was the biggest bond issue of all time and yielded 2.4%, it is now 3.5%. In the same period Spanish government bonds have gone from paying 4% at to and now yielding less than Apple.

 

Junk Bonds

Business Recorder: – Junk bond fund yields trounce peers as managers buy stocks to boost returns. – If you’re looking for top performing US junk bond funds, pick one that’s maxed out in stocks.

FT: – Some signs of dash-for-trash caution. – Ultra-loose monetary policy coupled with disinflationary pressures are keeping benchmark bond yields near recent and – in the case of Bunds – historic lows.

Reuters: – U.S. investor Jim Rogers pegs junk bonds as a short-sell candidate. – Junk bonds, which have done well this year, look like the most promising short trade the bond market has to offer, prominent investor Jim Rogers told Reuters in an interview on Monday.

Morningstar: – High yield is at ‘cycle peak’. – High yield credit is a cyclical asset class, but there is always a need for a healthy allocation to higher yielding assets to deliver the income required for investors.

IFR: – U.S. high-yield market takes breather. – The US high-yield primary market took a breather on Wednesday, with no new trades pricing despite a strong rally in Treasuries that took yields on the 10-year to their lowest since October.

Forbes: – Retail cash inflow squarely positive to high yield bond mutual funds, ETFs. – Retail-cash flows for high-yield funds were squarely positive this week, with $337 million plowed into mutual funds and $135 million infused to exchange-traded funds, for a net inflow of $472 million in the week ended May 14, according to Lipper.

 

Emerging Markets

FT: – Unholy EM trinity tempt investors with double-digit returns. – Argentina, Venezuela and Ukraine are the unholy trinity of emerging market debt, their double-digit returns tempting investors to ignore fears about civil war, crippling inflation and legal battles.

Bloomberg: – JPMorgan said to be betting Argentine securities will gain. – JPMorgan Chase & Co. (JPM) plans to hold some of the $3.25 billion of Argentine bonds it bought from Repsol SA as a wager the securities will rally and hasn’t hedged them, according to a person with direct knowledge of the bank’s strategy.

ETF Daily News: – Why now may be the right time for emerging market bonds. – After several months of not hearing much about emerging market (EM) bonds (other than “Where’s the exit?”), we have recently been fielding questions on whether there is value in this space. A key focus is the relative value of USD denominated EM debt relative to other fixed income sectors, which I discussed in a Blog post last quarter.

IFR: – Time to increase bets on EM? – Only a year after talk of a reduction in monetary stimulus in the US sent emerging market bonds into a tailspin, the asset class has staged an impressive recovery and investors are betting that spreads will continue to grind tighter.

 

Catastrophe Bonds

IPE: – Institutional investors inflating catastrophe bond prices, expert says. – Catastrophe bonds’ attractiveness is waning, as pension funds from the Netherlands, Nordic region and UK have piled into the market over the last 6-12 months, compressing yields, according to Urs Ramseier, chairman at Swiss boutique Twelve Capital.

 

Investment Strategy

David Schawel: – Why fixed income investors are once again turning to leverage. – Investors and strategists aren’t in love with high yield—nor are they counting on price appreciation—but they seem to reckon they can collect coupons since a turn in the credit cycle doesn’t appear imminent. They reason that with current annual default rates under 2% the actual loss adjusted yields are reasonably attractive.

Gary Gordon: – International stock and bond ETFs deserve more of your allocation. – U.S. corporate earnings growth has slowed. Heck, if you are looking at companies in the Dow Industrials, earnings have actually declined for three of the last four quarters. Yet record highs for broader U.S. stock benchmarks continue stealing the headlines.

BlackRock: – Great rotation? No, the reverse. – According to many market watchers, 2014 was supposed to be the year of the so-called Great Rotation out of bonds and into stocks. However, as Russ writes, we’re actually seeing the reverse happen lately, though the case for stocks is still quite strong.

Investment News: – Where to access retirement income now. – Take it from the pros: annuities, individual municipal bonds and equities in the pharmaceutical sector hold good prospects for clients seeking retirement income.

Financial Planning: – How to get yield if rates stay low. – Don’t get their hopes up, advised Kathy Jones, vice president and fixed income strategist for Charles Schwab’s Center for Financial Research.

 

Bond Funds

US News: – 3 Things to know about bond funds. –  You get virtually nothing on your savings or certificates of deposit, interest rates on home mortgages are low, as are interest rates on bonds. Investing in bond mutual funds is a challenge for investors. Here are three things to know about your bond funds.

NASDAQ: – Vanguard total bond market ETF experiences big inflow. – Looking today at week-over-week shares outstanding changes among the universe of ETFs covered at ETF Channel , one standout is the Vanguard Total Bond Market ETF (Symbol: BND) where we have detected an approximate $57.2 million dollar inflow.

Zacks: – Zacks #1 ranked government bond mutual funds. –  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, investors can click here to see the complete list of funds.

FT: – BlackRock signals bond trading shake-up. – BlackRock, the world’s largest asset manager, is teaming up with electronic trading hub Tradeweb in a shake-up for US bond and derivatives markets, supported by Wall Street banks.

Market Realist: – Must-know variants in developed market international bond funds. – International bond funds like the Vanguard Total International Bond Index ETF (BNDX) can have various investment styles determined by their stated choice of bond investments. Heres a brief overview of the different types of international bond funds available.

WSJ: – Ratings firms go own way on new bonds. – In a recent, and rare, bout of partisanship, ratings firms are taking sides on whether a new type of bond represents a safe bet or a slightly risky one. The discord, the firms say, shows that the industry is responding to critics who have said that raters in the past have too.

 

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