Bernanke’s Parting Gift to Bill Gross and Today’s Other Top Stories

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When Bernanke announced in what is rumoured to be his penultimate Fed meeting yesterday, that the Fed was maintaining course with its bond buying program. Many traders were left crying over their terminals. But there was one group of traders who couldn’t hide their glee, bond traders.

Shortly after the announcement bond prices soared with the yield on the 10-year Treasury note plummeting by more than 5% to 2.71% as bonds soared. The yield on the 10-year had more than doubled from 1.39% last year and rose above 3% just a few days ago.

Who is the biggest benefactor of this move. Non other than Bill Gross, the co-chief investment officer of Pacific Investment Management Company PIMCO. Gross could hardly contain his excitement when he appeared on CNBC moments after the announcement, when he said.

“PIMCO’s portfolios today, yes! We are making lots of money.”

Gross and other bond managers have suffered large losses in recent months as investors abandoned bonds in anticipation of higher interest rates. The question is, did they head for the hills too soon?


Todays Other Top Stories

Forbes: – The revenge of the bond boom. – For much of the summer, bonds and investors who owned them got kicked in the teeth as players in the financial markets anticipated that the Federal Reserve would start to taper its massive bond buying program in September. But the Federal Reserve shocked financial markets on Wednesday when it decided to keep buying $85 billion of bonds a month.

Learn Bonds: – Term premium: What it means to bond investors. – John Mason talks about the term premium. What is it and what does it mean to bond investors.

WSJ: – Strategies to protect a portfolio from a bond bear market. – Investment pros suggest some alternatives to help investors survive, or even profit from, a bear market in bonds.

Forbes: – Muni bond manager’s journal: When bonds turn negative, keep your perspective. – The likelihood of a positive return in municipal bonds this year is looking increasingly slim. Almost every one of the benchmark Barclays Municipal Bond General Market Indices for maturities of five years or longer experienced negative year-to-date returns through August.

Bloomberg: – Michigan cities gaining after Detroit breaks pledge. – Michigan municipalities are selling the most bonds since July, showing investors are warming to the state’s debt after Detroit’s record bankruptcy led to the postponement of at least $131 million of deals.

ETF Trends: – Time to get back to fundamentals in muni bonds. – As students around the country return to the classroom, it strikes me that now may be a good time to get back to the fundamentals on the municipal bond market as well.

MoneyWatch: – Can investors trust credit ratings on muni bonds? – My recent post on state pension obligations brought questions about the value of the ratings provided by such agencies as Moody’s, Standard & Poor’s and Fitch. While it’s true that the ratings agencies lost a lot of credibility for their failure to correctly analyze the risks of a wide range of asset-backed securities (ABS) in the years leading up to the financial crisis, such as collateralized debt obligations and mortgage-backed securities), municipals are a horse of a different color.

Bloomberg: – Morgan Stanley CEO says he invests in muni bonds, biotech. – Morgan Stanley (MS) Chief Executive Officer James Gorman said his personal investments include municipal bonds and a biotech fund, while he favors global equities for his children’s accounts.

Kiplinger: – Beware Puerto Rican bonds hiding in your portfolio. – If you invest in muni bond funds, you may own the island’s debt and not know it. Here’s how that can cost you.

Financial News: – Emerging markets and inflation bonds buoyed by Fed decision. Investors in emerging market debt and inflation-linked bonds were the big winners yesterday after the US Federal Reserve’s unexpected decision not to begin tapering its money printing programme.

ETF Trends: – Active high-yield bond ETF rakes in cash after Fed decision. – An actively managed ETF for high-yield bonds that has been outperforming its index-linked rivals this year saw heavy inflows Wednesday after the Federal Reserve decided not to taper its bond and mortgage purchases.

Bernardi Securities: – 2013 Municipal bond scare: Exits & opportunities. – For those who couldn’t make the live webinar, Bernardi Securities have uploaded the whole session for you to listen to at your leisure. The webinar features Matt Fabian from MMA (Municipal Market Advisors), one of the leading municipal market analysts. Topics covered include Detroit, “The Great Rotation”, laddered portfolios vs. funds, and recent market movements.

Bloomberg: – Bernanke saves companies $700 billion as Verizon leads sales. – America’s companies, from Apple Inc. (AAPL) to Verizon Communications Inc., are saving about $700 billion in interest payments with the Federal Reserve’s unprecedented stimulus.

Telegraph: – The income danger from a new breed of bond. – Low returns on cash has driven savers to find other potential places to put their money – one of which is in bonds, but these can be risky says Richard Dyson.



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Simon G

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