This Week’s Top Bond Market Stories – May 31st Edition

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LearnBonds

LearnBonds: – Option Selling: A strategy to increase portfolio income. – For the purposes of this article, we will discuss covered call selling and cash secured put selling – two of the most basic, and safest, option selling strategies for generating extra portfolio income.

LearnBonds: – Why is a properly diversified fixed income portfolio so important today? – Conditions are developing which should favor lower-end investment grade and upper-tier high yield corporate bonds and BBB to AA-rated municipal bonds. On the equity side, go large, watch your P/E ratios and remember, dividends matter.

LearnBonds: – What is going on in the bond market? – What is going on in the bond market? The yield on the 10-year Treasury Inflation Protected Securities (TIPS) closed below 20 basis points on Wednesday, May 28. This yield has not been so low since the middle of May in 2013.  The yield had actually been lower, but the rate had been so low because of all the money that had gravitated to the United States because of the financial conditions in Europe.

LearnBonds: – Can you count on a 6.6% frontier communications yield? – Frontier Communications (NYSE:FTR), now the largest rural telecom company in the U.S., has long been a favorite of mine, although it tested my devotion a few years ago when it cut its dividend twice in six months, from $1.00 a year to 40 cents.  Since then, though, the dividend has held steady, for a handsome yield of 6.6%. The question is, can you count on it?  I think you can. Here’s why.

  To see a list of high yielding CDs go here.  

Municipal Bonds

Reuters: – Airports seeking lower interest rates lead U.S. muni bond sales next week. – Airport bonds lead the $4.3 billion of U.S. municipal bond sales next week, a slight slump as the market closes for the Memorial Day holiday on Monday, according to Thomson Reuters estimates.

Bloomberg: – Washington Airports Authority plans $542 million of bonds. – The agency that runs the two main Washington-area airports is planning to offer $542 million of bonds, in one of the week’s biggest muni debt sales.

Bloomberg: – Tax-free bonds rally like it’s 1991 in fund frenzy: Muni Credit. – The longest rally in municipal debt in more than two decades is luring cash to mutual funds and pushing asset managers to buy tax-free bonds even with yields close to 11-month lows.

Risk.net: – U.S. muni treasurers warn LCR could crimp spending. – Municipal bonds are not highly liquid. To some, that’s stating the obvious, but if US regulators write it into their version of Basel III’s liquidity coverage ratio, state and city treasurers say their financing costs will rise. By Joe Rennison.

Cate Long: – De Blasio blows off bond signals. – Have the bond vigilantes begun to crack the whip at New York City Mayor Bill de Blasio? Capitol New York.

Reuters: – Puerto Rico electricity bonds get a charge from reforms. – Debt issued by Puerto Rico’s power provider got a boost on Wednesday after Governor Alejandro García Padilla signed into law measures aimed at stabilizing rates, diversifying energy sources and improving service.

WSJ: – Mom and pop investors return to municipal bonds. – Municipal-bond prices have come roaring back, reversing last year’s rout despite enduring financial challenges facing U.S. cities and states.

 

Treasury Bonds

Reuters: – Speculative net shorts in U.S. 10-year T-note futures rise. – Speculators’ net bearish bets on U.S. 10-year Treasury note futures rose in the latest week, while speculative net shorts in Eurodollar futures held near their record level, according to Commodity Futures Trading Commission data released on Friday.

4Traders: – Treasury bonds slide on durable goods data. – U.S. Treasurys were off to a tepid start after the long weekend as an upbeat business spending release sapped demand for safe assets.

WSJ: – Treasury bonds rise, shake off upbeat data. – Treasury bonds strengthened on Tuesday, shaking off upbeat U.S. economic releases, a lukewarm two-year note auction and another new peak for stocks.

Yahoo Finance: – Treasury bonds will remain hot as long as recovery remains tepid. – The slowness of the economy to recover from the recession, plus the lack of inflation in the system means that US Treasury yields may remain low for a while longer, says Kirk Barneby, portfolio manager of the Centre Active U.S. Treasury Fund.

Business Recorder: – The lost charm of treasury bills. – Single-digit rates are not exciting enough anymore. Even with the rate cut view for the longer run maintained by the market, there were no takers for 12-month treasury bills in the latest MTB auction held on May 28, 2014. A look at the latest auction result makes the previous auction look like one from another world and another time.

 

Investment Grade Bonds

WSJ: – Favor Triple-B corporate bonds, Barclays says. – Bonds rated in the triple-B-category, the low end of investment grade, are poised to do better than some higher-rated bonds in the coming months, analysts from Barclays said in a research note Friday.

Market Realist: – Must-know: The corporate debt market. – Corporate debt (debt issued by corporations) can be classified in various ways. It can be classified in terms of maturity, the type, and the issuer’s credit quality.

PV-Tech: – Barclays cites solar threat as it downgrades entire U.S. utility bond market. – Barclays downgraded the entire high grade corporate bond market for the US electric sector last week in a strong indication that solar PV-generated power coupled with storage presents a long term disruptive risk to utilities.

ETF Trends: – Safe bond ETFs outperforming in corporate debt market. – The safest corporate bond exchange traded funds have attracted their fair share of interest this year, with U.S. investment-grade corporate debt now trading below pre-recession levels, but the outperformance may not last.

 

Junk Bonds

Businessweek: – The bearish signs junk buyers reject in stoking ’14 rally. – This year’s unexpected bond boom may look like a rally, but it doesn’t smell like one. At least not to Morgan Stanley strategists, who detect something amiss in the way different securities are performing relative to one another.

Barrons: – Ignoring the reality of junk. – (Subscription Required) Just about everybody agrees that junk bonds look seriously overvalued. And just about everybody keeps buying them. Someday behavioral economists may look back at today’s high-yield bond market as a textbook study in how investors can continue to buy something even when they believe it’s significantly overpriced.

Bond Buyer: – High-yield issuers should seize the moment. – Investors’ ravenous demand for high-yield municipal bonds has created an optimal environment for lower-rated issuers, analysts say.

MarketWatch: – Junk bonds turn up the risk for retirees. – Retirees with junk bonds need to be aware of the risks and determine if they are being adequately compensated for assuming those risks.

IFR: – High-yield lite fuels fears. – Junk-bond investors are passing up traditional protections in their race to buy new debt, and some participants worry the diminished safeguards are a sign of an overheated market.

 

Emerging Markets

Investment News: – After a drop from the Federal Reserve’s tapering scare, fixed income assets have rebounded. – Emerging markets are rebounding as part of a significant turnaround that is setting them apart from other asset classes in fixed income, making them an attractive risk reward proposition for investors.

FT: – Investors jinxed by quirky market logic. – There are times when market behaviour appears to defy economic logic. That has certainly been the case in 2014, which has thrown up a number of investment puzzles, starting with the strength of government bonds in the developed world.

Emerging Markets Daily: – EM bond risk tempered, despite flurry of issuance. – With emerging market corporate bond issuance on the rise in recent weeks, and investors seeking out higher-yielding sovereign debt, there are signs of a build-up in risky emerging market positions.

IFR: – Emerging market bonds surge as US Treasury yields hit 2014 low. – Despite much of Europe being on holiday today, emerging credit markets are extremely strong. This is best evidenced by the new Halkbank US$500m 4.75% five-year note, which has surged in the aftermarket to 101.25 from a reoffer price of 99.953.

What Investment: – The best way to invest in emerging market bonds. – Investing in local-currency emerging market bonds won’t necessarily bring a quick or easy profit, but may be worth it for long-term, patient investors, argue Gerardo Rodriguez, managing director of BlackRock’s emerging market team and Sergio Trigo Paz, head of emerging market debt at BlackRock.

 

Catastrophe Bonds

Artemis: – Bermuda Stock Exchange listings of cat bonds & ILS hits $12.43 billion. – The total volume of insurance-linked listings on the Bermuda Stock Exchange (BSX) reached a new high in recent days, with catastrophe bonds, insurance-linked securities and insurance linked investment funds on the BSX now totaling $12.43 billion.

FT: – USAA sells first meteor strike ‘cat bonds’. – USAA, the US insurer, has sold $130m of catastrophe bonds that allow investors to collect yields of 15 per cent or more by betting on the chances of a meteor strike or volcanic eruption.

Insurance Journal: – Florida benefits as yield-thirsty investors line up for hurricane bonds. – In 2008, Florida’s government-run property insurer paid Warren Buffett $224 million to agree to buy its debt if a major storm struck. Six hurricane-free years later, the state is turning investors away.

 

Investment Strategy

Journal Sentinel: – In challenging bond market, put focus on total return. – After a more than 30-year bull market in bonds, the landscape has changed. As interest rates plunged from their 1981 peak, bond prices rose, creating a spectacular run for fixed-income investors.

Pensions and Investments: – Managers not straying far from traditional fixed income. – Expectations that asset owners would be investing more in alternatives to fixed income didn’t come to fruition in 2013, according to Pensions & Investments’ 2013 money manager survey, as assets in traditional yield-seeking credit investments were the only ones to see gains last year.

Live Trading News: – El Erian on why bond investors continue to surprise the experts. – There is a major contradiction in this market, participants are putting their money into bonds again, perplexing the experts who have been expecting them to continue switching into riskier assets.

Money Marketing: – Jim Leaviss: Finding value in global bonds. – Value may still be found in global bond markets as interest rates may remain lower for longer and inflation is not a near-term concern.

USA News: – How to build an all-weather mutual fund portfolio. – The first and most important quality of a portfolio is that it be diversified. A portfolio should contain stock mutual funds as well as mutual funds that contain bonds. How much of each you should include depends on two things: time horizon and risk tolerance.

 

Bond Funds

WSJ: – Bond market flips the script on risk and reward. – For many bond investors this year, the reach for yield has come up short. Bonds perceived as safe have produced better returns than riskier ones for the first time since 2010.

Financial Post: – What Mr. Bond is telling the market. – There is no shortage of research out there trying to explain the big surprise of the year: the rally in bonds that has dragged the yield on the 10-year U.S. Treasury note down more than 50 basis points to 2.5%.

Focus on Funds: – Have your bonds, and hedge them, too. – One of the trendy, well, trends in fund investing these days is the range of efforts to build something capable of dodging a sudden surge in interest rates. Not everything will work, but rest assured everything will be tried.

EuroMoney: – Have bond investors become too big? – The biggest bond funds now dominate the market for good or ill. Just how much muscle they now wield in the primary market is, however, a matter of some dispute.

ETF.com: – Daily ETF watch: 5 ETFs launch. – Five ETFs are launching today, including four corporate bond funds from iShares and one multi-asset class “alternative” strategy from PowerShares aimed at better minimizing the effects of market volatility. All five funds are tools that can help investors better manage the expected rise in yields.

 

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