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It’s that time of the month again, Bill Gross is out with his monthly outlook. Always a pleasure to read, not only for Gross’s wily market commentary, but because invariably we get to learn something more about the indomitable Mr Gross.
This month we learn that ol’ Bill is not a fan of baseball, “it’s the most boring game in the world next to cricket” he says, this from a man who plays golf. I’ve got to say, being English, that I know about as much about Baseball as Gross knows about cricket. As far as I can see, its what we call rounders. A game played by girls in first grade, and without the padding and protective helmet I might add.
But what’s all this got to do with the bond market I hear you ask? Well, according to MarketWatch, we’re in the seventh inning of the Federal Reserve’s bond buying program, that is — and the home team is down.
With the Fed all set to announce the tapering of bond purchases, possibly as soon as this month, the days of Quantitative Easing are coming to an end. So what happens then?
“Some say stocks – [are] the only game in town. But I don’t know. When the Fed stops the QE game, it seems that stocks might be at risk. After all, haven’t they more than doubled in price since 2009 in part because of it? Without Big Government deficits and Big Bank check writing and with the advancing risks posed by Big Regulation and the technical whimsy of Big Investor, the safest pitch to swing at may not be stocks but the asset that will soon be the nearly sole focus of central banks.”
So what does “pitcher” Gross recommend? “it’s perhaps best to field boring slow-rolling grounders based on policy rate stability for an extended period of time.” He says.
“Bond investors should focus on “safer” front-end positions in Treasuries or credit space because of the Fed’s shift to forward guidance.”
The last word should go to the greatest pitcher of all time (apparently). Babe Ruth:
“Who is richer? The man who is seen, but cannot see? Or the man who is not being seen, but can see?”
Todays Other Top Stories
MoneyBeat: – Ten-year yield poised to break through 3% ‘tripwire’. – If you were burning with curiosity about how the U.S. economy might react were the Fed to pare back its bond-buying program and bond yields were to rise, you may be about to find. The latter, though, looks like it will hit the scene before the former.
Market Anthropology: – Dancing with gorillas & the yin & yang of yields. – As yields continue to move with all the grace and gentility of your average 800-pound gorilla, we thought we’d revisit our Pole Reversal chart we occasionally reference from time to time to see where things line up.
Learn Bonds: – How I interpret bond market interest rates. – Since this is my first post for Learn Bonds, I thought it might be useful to explain how I go about interpreting bond market interest rates. More specifically, I would like to discuss how I interpret the current yield on the 10-year United States government note.
MoneyBeat: – Who cares about Syria? The Fed is buying fewer bonds! – Financial analysts might bleat about market nervousness over the likelihood of U.S. air strikes against Syrian President Bashar al-Assad, but the brutal truth is that Wall Street doesn’t care about war. Right now, all it cares about is the Fed.
WSJ: – Sprint sells largest-ever junk’-bond offering. – Sprint Corp. sold $6.5 billion of below-investment-grade bonds, the largest “junk” debt offering by a company, according to data provider Dealogic’s records going back to 1995, and a record deal for the telecom sector.
Claus Vistesen: – Yield bubble intact and inflating. – Emerging economies are reeling as rising U.S. bond yields are squeezing the most vulnerable and funding intensive parts of the market. But the squeeze in EM yields is merely an hors d’oeuvre to what is likely waiting in the wings.
The Capital Spectator: – Mr. Market reconsiders disinflation/deflation risk. – Inflation expectations have fallen moderately this year, but the stock market has trended higher. Is this a sign that the new abnormal is history?
WSJ: – Bond ETFs that use fundamental indexing are off to slow start. – So far, the four bond ETFs that use fundamental indexing have attracted only a small sliver of investor dollars.
The Street: – How to play the sweet spot in high-yield bonds. – This year has been tumultuous for investors in long-dated treasuries, emerging markets and municipal bonds. The stratospheric rise in interest rates has caught the vast majority of bond investors off guard and introduced a great deal of volatility into what has traditionally been an asset class with minimal price fluctuations.
Ray Merola: – Current premises and strategies for managing fixed income investments. – How might an investor position the fixed income portion of his / her portfolio given the rapid rise in long interest rates?
WSJ: – In muni-bond market, some investors fly first class. – On a Friday in late March, representatives of about two dozen investment firms gathered at the New York offices of Barclays PLC to hear Puerto Rico government officials explain why the island’s bonds—recently downgraded to near “junk”—were still a good investment.
Fox Business: – More pain could be in store for Treasury bonds. – It has already been a horrid year for investors in U.S. Treasuries – and it could easily get much worse.
Cranky: – Bonds: Don’t fear the reaper. – All the talk about bonds, you’d think they’re sounding the portfolio death knell for investors, and the balanced portfolio.
Morningstar: – European recovery: Implications for bonds. – Improvement in economic conditions in Europe has led to a fall in German government bond prices.
FX Street: – Why investors are fleeing both the bond and stock markets. – Investors are fleeing both the bond and investment markets, its not so much the great rotation as the great abandonment. But why?
WSJ: – ‘Jumbo’ mortgage rates fall below traditional ones. – Interest rates on mortgages for pricey homes have dropped below those on smaller mortgages, an event that lending executives say has never happened before.
Bloomberg: – N.Y. Thruway pays least as Tappan Zee loan prepared. – Investors are driving the New York State Thruway Authority’s borrowing costs to a 14-month low relative to benchmark debt in a bet that the agency will be able to finance the largest project in its 63-year history.
FT: – Optimism grows for developed economies. – Government borrowing costs in the US and Europe surged as investors became more optimistic that the developed world has embarked on a period of sustained and rapid growth and anticipated that central banks will increase interest rates earlier than previously thought.
#Fed rate hike expectations jumping sharply again today. First hike now fully priced in by Dec 2014. Sharp divergence from Fed guidance.
— AnthonyValeri (@Anthony_Valeri) September 5, 2013
Strong auto sales & ISM pushing 10-yr to new highs just under 3%.
— AnthonyValeri (@Anthony_Valeri) September 5, 2013
Far more likely that Fed reduces MBS than mkt thinks – if for no other reason than to alleviate supply issues w/refi volume falling so much
— David Schawel (@DavidSchawel) September 5, 2013