This Week’s Top Bond Market Stories – November 30th Edition

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Learn Bonds

Learn Bonds: – What recent bond market volatility means for investors. – The volatility in bond yields and prices is another source of risk for the investor. Unless you just want to buy and hold a bond to its maturity, the volatility that now exists in the bond market makes for greater uncertainty as to exactly what the total return on a bond investment might be. So what does volatility mean for investors?

Learn Bonds: – Weighing your investment grade bond options. – There are a host of reasons for considering investment grade bonds: diversification, capital preservation, an elevated stream of income compared to cash – the list goes on and on. Though bond detractors tend to point to the historically low interest rate environment in which we live as reason to avoid bonds, investors concerned with the stock market’s valuation or those that cannot handle rampant volatility may find considerable solace in owning a portfolio of individual bonds.

Learn Bonds: – Upside down world: I bonds pay a higher fixed rate than EE bonds. – There are two possible arguments that could be made for buying EE bonds instead of I Bonds. If inflation is negative, the I Bond could pay zero percent interest in subsequent 6 month periods of time after purchase. When CPI-U is negative, CPI-U is deducted from the fixed component to calculate the total interest rate for I Bonds, with a floor of zero percent. It’s a remote possibility that in the future, the total interest rate on I bonds could be 0.0%. For EE bonds to be the better buy, inflation would have to be negative for a decade if not longer.

Learn Bonds: – Two moderately-aggressive asset allocations for income-focused investors. – Two examples of asset allocations investors with moderate risk tolerances and $1 million in retirement savings could consider. Naturally, there are countless variations investors could create, and your investment objectives, risk tolerance, and time horizon will help shape your allocation.

 

Municipal Bonds

MuniNetGuide: – What to be thankful for in munis. – With virtually no new issue supply to speak of this holiday week and relative stability on the rate front, this might be a good time to take stock of everything that’s happened in the muni market this year. And there certainly hasn’t been much to be thankful for.

Governing: – An update on two endangered tax breaks. – With just over a month left in 2013 and Congress’ already abysmal track record, it’s a good bet that nothing will happen with tax reform this year. For states and localities, that’s a huge relief. After all, two items on tax reformers’ hit lists include the tax-free interest on municipal bonds and the ability of taxpayers to deduct state and local taxes from their federal income taxes.

Forbes: – Puerto rico leads the way in investor protection. – We have been blogging about Puerto Rican municipal bonds over the last several weeks. The situation for mom and pop investors and retirees in Puerto Rico is dire, to say the least.

The Winchester: – Vote set on bond issue for nursing home. – The Clark County Fiscal Court will vote on a second reading today of an ordinance that would allow them to act as the municipal fiscal agent issuing $10 million in bonds to Lexington’s Sayre Christian Village Nursing Home Inc., funded by Central Bank.

Bloomberg: – South Carolina issues bonds to lure Boeing. – South Carolina will sell $85 million in debt this week to help Boeing Co. (BA) expand a plant as the state jockeys to manufacture the company’s largest twin-engine jet.

Conduit Street: – Congressman Harris writes to MACo on municipal bonds. – Congressman Andy Harris of Maryland recently wrote a letter Read the letter here to MACo President Rick Pollitt on the municipal bonds tax exemption. President Pollitt reached out to the members of the Maryland Congressional Delegation in a joint letter with Maryland Association of Boards of Education President Roger Janssen Read the letter here on the importance of maintaining the tax exemption to support school construction funding and other local infrastructure.

 

Treasury Bonds

Income Investing: – Treasuries maybe bubblier than stocks, junk bonds. – Amid the latest round of bubble talk, UBS this week takes a look at relative risk between stocks and Treasuries and says you shouldn’t call one a bubble based on how it compares to the other right now.

Reuters: – Prices edge up slightly to start holiday-shortened week. – Prices for U.S. Treasuries edged up slightly on Monday as housing data proved weaker than expected, kicking off a holiday-shortened week with a relatively light slate of economic data.

 

Investment Grade Bonds

Bloomberg: – Corporate bond spread near 2007 low as gross says fed on hold. – The extra yield corporate bonds offer over Treasuries was one basis point away from the narrowest level in six years as the Federal Reserve’s pledge to keep interest rates low drives a search for income.

FT: – Big US banks back new bond trade venue. – Some of the largest banks have tentatively agreed to create a new electronic bond trading venue in an attempt to improve liquidity in the $9tn market for US corporate debt while still retaining their control over the way the securities change hands.

CreditFlux: – Merganser launches corporate bond fund as US plans floaters boost. – Asset manager Merganser has announced the launch of a floating rate bond fund focusing on investment grade corporate bonds.

 

High-Yield

Income Investing: – With taper looming, junk bonds still looking good. – Corporate bonds have been doing well amid all the taper discussion. RBS says says corporate bond valuations generally don’t look bubbly, and investors should overweight high-yield bonds versus their high-grade counterparts.

HighYieldBond.com: – leveraged loans vs. high yield bonds. – After spiking in June – amid talk of tapering in the Fed’s bond buying program – yields on double B rated leveraged loans and high yield bonds have thinned. As of Nov. 21 the average BB new-issue yield was  3.78% for leveraged loans and 5.63% for high yield bonds.

Investment Week: – Will HY investors regret riskier purchases when the cycle turns? – High yield investors moving up the risk spectrum in order to secure higher returns are not being adequately compensated, says Stephen Baines, fund manager in Kames Capital’s high yield fixed income team.

Forbes: –  High yield bond issuance tops $300B in 2013 amid cash inflows. – U.S. high yield bond activity continued apace last week as issuers look to complete offerings before the Thanksgiving break. Volume totaled $6.675 billion, bringing year-to-date activity to $300.3 billion. That’s only the second time U.S. high yield issuance has topped $300 billion, according to LCD’s Matt Fuller. The first was last year, when activity totaled a record $345 billion.

 

Emerging Markets

Zacks: – ProShares launches emerging market bond ETF. – ProShares is best known as an ETF provider of leveraged and inverse funds and it is one of the main players in this market. However, the company has also made a big push into the unleveraged ‘regular’ ETF market as of late, launching a series of funds in this corner of the fund world over the last few weeks.

YourMoney: – Back to basics: a quick guide to emerging market debt. – What is emerging market debt? Emerging market debt is a term used to encompass bonds issued by governments and corporates in developing countries.

Barron’s: – Gundlach – Best bond bet is dollar-denominated EM debt. – Jeff Gundlach talks to Jack Otter about finding value in bond sectors. His favorite right now? Dollar-denominated emerging-market bonds.

Funds Europe: – Emerging markets safe despite bond vigilantes. – “Bond vigilantes” are likely to cause volatility in Treasury yields despite the efforts of the US Federal Reserve to prepare the markets for tapering – but emerging markets probably won’t be hit so hard this time around.

Financial Trends: – JPMorgan USD Emerging market bond Fund ETF re-enters positive range. – The exchange traded fund iShares JPMorgan USD Emerging Market Bond Fund ETF has seen its market cap go up to $3.68 billion. This fund was previously traded under the name “iShares JPMorgan USD Emerging Markets Bond Fund”.

MyIris: – Fund flows, Fed sending mixed signals about taper timeline. – The third week in November kicked off with Janet Yellen, who is on course to succeed Ben Bernanke as heads of the US Federal Reserve, telling a Senate committee that the benefits of the Fed’s current quantitative easing program (QE3) still outweigh the costs. It ended with investors digesting minutes from the Fed’s October meeting that suggest the decision to ‘taper’ QE3 could be made in ”the next few meetings.”

 

Catastrophe Bonds

NerdWallet: – One of the best asset classes you’ve never heard of. – If you are concerned about the stock market that is reaching all time highs and bond yields, that although higher versus a year ago, are still very low where do you go to invest? This is the same question we have been asking for all our clients. To be sure, virtually every client will retain significant exposure to select stocks and bonds depending on their risk tolerance and goals but recent valuations and yields have pushed us to look into alternative investments.

 

Bond Funds

Market Realist – Why bonds sold off on stronger economic data and a hawkish Fed. – Long-term interest rates are priced off the benchmark long-term bond, which is the ten-year Treasury. These days, the ten-year bond reacts to economic data through the Federal Reserve’s asset purchase program, also known as quantitative easing (or QE). As a general rule, economic data that shows weakness is bond bullish (positive). However, data that shows strength isn’t necessarily bond bearish (negative).

Morningstar: – PIMCO’s 2013 Struggles. – Mohamed El-Erian has them muttering. Steve Goldberg of Kiplinger writes, “El-Erian’s PIMCO Fund falls flat … PIMCO Global Multi-Asset has been little short of a disaster.” An email correspondent, after seeing yet another headline about PIMCO’s forecasts, quips that El-Erian is “overexposed in the media and underperforming on the fund statement.” So whats going on?

TWST: – Bonds under pressure. – Stock prices closed at new highs once again last week. The S&P 500 added another 0.4 percent, increasing its gain for the year to 26.5 percent. There is little to say about this rally that hasn’t already been said. So the focus here will be on bonds, which are dramatically underperforming as the cost of credit climbs.

Governing: – City bonds still a good investment despite slow market. – A meager growth environment could have issuers tapering their borrowing, but local governments are still expected to be a stable investment.

Reuters: – The government-dominated bond market. – JP Morgan’s Nikolaos Panigirtzoglou put a fascinating report out last week, looking at supply and demand in the global bond market in 2014. And although I consider myself something of a bond nerd, I was genuinely astonished by some of the charts he put together.

Chicago Tribune: – Investing: What now for bond investors? – Between taper talk, a government shutdown and the doggone debt ceiling, it’s been a topsy-turvy time for bond investors. Most suffered losses when the yield on ten-year Treasury bonds soared from 1.6 percent in May to nearly 3 percent in September, then fell back to 2.7 percent in early October (bond prices and yields move in opposite directions). Now, with Janet Yellen slated to take over as Federal Reserve chief in January, many market watchers expect little change in monetary policy until then.

 

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