Bill Gross’ Total Return Divergence…North Las Vegas Muni Emergency…and More!


Best of the Bond Market for July 19th, 2012

Reuters: The PIMCO Total Return ETF has failed to track the larger fund by an enormous margin – there’s a whopping 350bp gap between the two already, and that’s just performance since March 1.

Bespoke Investment Group: Investment Grade Corporate ETF (LQD) Goes Parabolic – The LQD investment grade corporate bond ETF has traded like a tech bubble stock (during the good times) over the past few weeks.

Dynamic Hedge: Are we starting to see the capital come out of treasuries? – Since it had a blow-off top a couple days ago it looks very soft.

Learn Bonds: With average returns of 10% per year+ what’s holding investors back from p2p lending? – Here are 7 reasons.

Morningstar: Junk Bond ETFs fail investors on two levels – Their underlying asset class may be systematically overpriced, failing to offer returns commensurate with their risks, and their price-indifferent trading imposes enormous hidden costs on investors.

Seeking Alpha: The high yield default rate holds steady at 2.2% in June –  The weighted average recovery rate in 2012 H1 was 57.8% of par, well higher than the 35.9% seen over the last 12 years. Fitch expects the full-year default rate to end at 2.5-3%.

Barron’s: Some municipalities are losing their will to make payments to bondholders – In a report Thursday, Moody’s Investors Service says “willingness to pay debt obligations may be eroding in the US municipal market” as cities start viewing bankruptcy as less of a stigma and more of an expedient means to make up for a lack of political willpower to raise taxes or make further service cuts.

Marketwatch: US sells TIPS at record low negative yield – The Treasury Department sold $15 billion in 10-year Inflation Protected Securities, or TIPS, on Thursday at a yield of -0.637%, in the fourth straight auction where TIPS of this maturity have come at a negative yield.

The San Bernardino Sun: San Bernardino declares fiscal emergency, approves bankruptcy – The City Council took what several members called the hardest decision of their professional lives Wednesday, formally declaring a state of fiscal emergency and directing staff to file for Chapter 9 bankruptcy protection.

Fox News: North Las Vegas city leaders declare state of fiscal emergency – Using a state law that highlights natural disasters and other unforeseen circumstances, North Las Vegas city leaders, prohibited from declaring bankruptcy, unanimously decided last month to declare their own state of fiscal emergency.

Bond Buyer: SEC to issue report proposing muni market reforms – The Securities and Exchange Commission is preparing to issue a report, as soon as Thursday, proposing legislative and regulatory changes that would improve disclosure and price transparency in the $3.7 trillion municipal bond market.

WSJ: Here are the safe European bond markets – Looking for safe European bonds to buy? Here they are, sporting yields that are in many cases less than nothing. Yields on two-year notes issued by Germany, Holland, Denmark, Switzerland are in outright negative territory this morning, Austria and Finland aren’t that far off either.

WSJ: A growing number of large global bond funds are diving into the shallow debt markets of small countries. – The billion-dollar funds dwarf local banks and investors who also purchase the debt, giving them outsize stature in these fringe markets.

Saibus Research: Meredith whitney’s muni massacre and the recent California municipal bankruptcies – we believe that it is too early to say whether Meredith Whitney’s municipal massacre prediction was accurate or not. If things keep on the same trend that has occurred since her prediction, we believe that her prediction will end up being a tempest in a teapot.



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