NY Times Wants Fed to Buy Muni’s…Bond Fund Managers Fudging the Numbers?…PIMCO Selling Financials..and more!

Best of the Bond Market for October 24th, 2012

NY Times: Why the Fed should buy municipal bonds – Is the mortgage market really the smartest place to spend all this money? Wouldn’t the Fed get more employment bang for its monetary buck by purchasing state and municipal bonds?

MarketWatch: – Are bond-fund managers inflating their grades? – New research suggests most muni-bond fund managers compare their funds to a benchmark that’s easy to beat.

Bloomberg: – PIMCO sours on financial bonds in record rally. – Financial bonds worldwide are on pace for their best annual returns on record, leading investors from Pacific Investment Management Co. to DoubleLine Capital LP to see an end to the four-year-old rally.

Caprin: Are bond investors prepared for the kind of bear market we haven’t seen for 30 years? – Think about how different the world was the last time there was a true bear market in bonds. Very few people actually had fixed income assets back then. Today we have the prevailing belief today that, ‘I cannot lose money in bonds’ because that’s what history has shown. Even when investors buy bonds to earn 1.50% over ten years, they think only about the lower rate of interest they’ll receive, and not appreciate the emotional consequences of their ‘safe money’ possibly falling 7% in value.

Barron’s:Effects of Fed’s bond market distortions still ‘under-appreciated’ – The Federal Reserve’s monetary policy has been distorting fixed-income markets since 2008, but BlackRock says the extent of that distortion is still “under-appreciated” by many market participants. Rick Rieder, BlackRock’s chief investment officer for fixed income, says a wide variety of asset classes have disconnected from their fundamental valuation underpinnings, exposing them to a variety of risks.

BusinessWeek:PIMCO prepared to reduce emerging-market corporate debt on China. – Pacific Investment Management Co., manager of the world’s biggest mutual fund, is prepared to cut its holdings of emerging-market corporate debt next year on concern a flood of new sales and further economic slowdown in China will put an end to a 12-month rally in the securities.

Learn Bonds:Abnormal Returns – Interview with Tadas Viskanta. – After reading his book Abnormal Returns: Winning Strategies from the Frontlines of the Investment Blogosphere I asked to speak to Tadas to see what additional insight he was willing to provide me and the audience here at Learn Bonds.

Bloomberg: – NYC munis in best rally since 08 as investors refute budget concerns. – New York’s debt is rallying the most in four years as investors bet the most-populous U.S. city will overcome a midyear deficit and cope with health costs projected to grow 35 percent by 2016.

Kurt Shrout:Mortgage-Backed securities offer a raw deal. – One day, there may be a significant amount of public anger regarding mortgage-backed securities (MBSs). This will occur after mortgage interest rates have risen. This will occur when it becomes clear to many individuals invested in MBSs that they offer a raw deal. The deal is that you benefit a limited amount when mortgage interest rates fall.

Chris Sandys:The PIMCO high income fund is too good to be true. – Here is a story with a potentially sad ending. It may conclude with thousands of small investors losing a lot of money, as their hunger (greed?) for high yield collides with a leveraged, too-good-to-be true investment.

WSJ:Corporate bond prices slip as investors await the end of the rally. – The rally that lifted U.S. corporate bond markets to record highs in September and October showed signs of fading this week as bond prices fell and the pace of new borrowing slowed.

J.P.Morgan: – Municipal bond market update. – An in depth report into the municipal bond market from the J.P.Morgan Municipal Research and Strategy Group.

Reuters:potential bond upgrade count reaches year high. – The number of entities poised for upgrades increased slightly to 230 as of Oct. 11 from 228 as of Aug. 31 after increasing about 5% the previous month, said an article published today by Standard & Poor’s Global Fixed Income Research team.

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