BlackRock Fixed Income Chief: 10-Year Yield Could Drop to 1.5%


Best of the Bond Market for May 9th, 2012

CNBC: BlackRock’s Fixed Income Chief Says 10 Year Could Go to 1.5% – Rick Rieder BlackRock Chief Investment Officer of Fixed Income believes yields on the 10-year could go as low as 1.5%….Doug Kass, who calls shorting bonds the trade of the decade, might not like hearing this.

Here is the interview Kass did with CNBC Yesterday where he continues to tout his short bond position.

CNBC: Doug Kass Says Short Bonds, Safety Premium Too Great – Kass is so bearish on bonds he says selling them short may be the trade of the decade. 

At this point if this does not end up being the trade of the decade it sounds like it may be the blowup of the decade for Kass’ Investment Management Company Seabreeze Partners Management.  Here is a history lesson from Mabane Faber for those that think this sounds like a no brainer trade:

Mabane Faber: “Every Human Being on the Planet Should Short TreasuriesThat was a quote from a famous market pundit in Feb 2010, who also described the trade as a “no-brainer”.  Had you followed this guru’s advice your no-brainer portfolio would be down 50%.

Outside of the above story and our Interview with BlackRock’s Municipal Bond Head  Peter Hayes it was all about Europe today:

Star Telegram: PIMCO’s Gross Says Budget Pain Isn’t Enough in Europe (h/t @bondnewsupdate) – … you don’t cut everything and hope the private markets reward you for it. It has to be a balance. What Europe really needs is to get the private market back in there. They’re trying to convince the Pimcos of the world to return (by having the European Central Bank lend to banks), but all the efforts so far use public money. The global marketplace is privately funded. And if the private markets can’t be convinced, this crisis is going to be with us for a very long time.



FT: Nouriel Roubini Says Get Ready for the Spanish Bailout With the Spanish economy contracting sharply and with unemployment soaring, it was inevitable that the government had to bail out the banks. But this only deals with one piece of the puzzle. Without growth, the Spanish sovereign will need a bailout as well.

Bloomberg: US 30 Year Muni Yields Reach 3 Year Lows in “Perfect Storm” The yield on top-rated tax-exempt bonds maturing in 30 years fell 3 basis points, or 0.03 percentage point, to 3.24 percent at 10 a.m. in New York…as supply in the $3.7 trillion market slowed and concern that Europe’s financial crisis is worsening boosted demand for the safest assets.

Market Folly: Grey Owl Capital on Investing in a Low-Return Environment: Q1 Letter – Their Insights: 1. Look for undervalued securities, 2. Invest in short dated high-yield fixed income, 3. Hold plenty of dry powder anticipating better opportunities

The Financial Lexicon: Three 7% To 9% Yielders To Consider Buying – …in recent weeks, I’ve been finding it increasingly more difficult to find bonds rated B3/B- or higher trading at prices that really excite me. However, there are three that I find noteworthy….Chesapeake Energy, Alpha Natural Resources, and Nokia 

Fullcarry: 10 Year Tips Vs. Gold Graph

BusinessWeek: Junk Overtakes Stocks as Cash Inundates Funds: Credit Markets – Funds that buy speculative-grade debt reported $1.84 billion of inflows in the week ended May 2, with more than 85 percent of the cash going toward U.S. high yield….Junk bonds have returned 8.3 percent this year through yesterday, exceeding the 7.2 percent gain for stocks. 

Bloomberg: Governments Belatedly Put Pension Deficits on their Books – “The liability will appear to be larger than it has in the past,” Cathie Eitelberg, national public-sector market director for New York-based Segal Co., a pension consultant, said in a telephone interview. “There could be some very surprised elected officials.” One in three police and fire retirees in West Warwick, RI Receives a Disability Pension (h/t @bnels22) – their pension fund for 654 active and retired police officers, firefighters and town workers is on track to run out of cash within five years….The shortfall in West Warwick’s pension fund totaled $98 million as of July 1, 2010, which made its funded level just 26%, according to the most recent study by Milliman Inc., the town’s actuary. That’s nearly as much as last year’s entire $107 million town budget.  




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