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Bill Gross: Bonds Might be Expensive and Today’s Other Top Stories

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Bill Gross hinted that bonds might be expensive on Tuesday, a view which puts him at odds with rival fund manager Jeff Gundlach.

Gross took to Twitter to comment on a speech given Monday by New York Fed president Bill Dudley. In which Dudley said that while the natural interest rate — or the rate at which the Fed’s inflation and employment objectives are achieved — may be lower than they’ve been historically going forward, this rate could still be 3%-4%.

To see a list of high yielding CDs go here.

Gross tweeted that if Dudley is right about the natural interest rate, then bonds are overpriced by 2%-3%.

Gross’ comments come after Jeff Gundlach, who is widely seen as the man most likely to take Gross’ “Bond King” throne, told CNBC that Treasury bonds still look relatively cheap.

In the past, Gundlach has said that he doesn’t think the Fed has any plans to raise rates. And while last week Gundlach told CNBC that he thinks the Fed might raise rates next year “just to see what happens,” he added that with Spanish 10-year bonds yielding less than 2% it seems “almost unthinkable” that US Treasury yields would rise.

Gross, who unexpectedly left PIMCO back in September, briefly met with Gundlach about joining his firm, DoubleLine Capital, but the two decided not to join forces. Gundlach told CNBC that Gross joining DoubleLine was “sort of a 50-50 kind of proposition,” but said that ultimately, he is okay with the decision because had investors asked him, after signing Gross, what the move meant for DoubleLine, the answer would have been, “I don’t know.”

Divergent views within a firm are common, if not healthy. But Gundlach and Gross are the two biggest names in the bond world, and so given their split view of the bond market, maybe it’s better that they’re not working together.

 

Todays Other Top Stories

Learn Bonds

Learn Bonds: – German bonds drop as investors await ECB policy meeting. – For a second day, German Bonds declines while investors determined if officials with the European Central Bank will add more stimulus at this week’s policy meeting.  

 

Municipal Bonds

Businessweek: – Detroit emergency manager Kevyn Orr planning resignation. – Detroit Emergency Manager Kevyn Orr said he may submit his letter of resignation to Governor Rick Snyder within days.

ValueWalk: – Mid-term bond approvals may help close the book on muni supply saga. – The municipal bond market roared back this year after a disappointing 2013, as a dearth in supply and improved demand buoyed muni bond prices. Recent election results, however, indicate that states and cities may be fiscally confident enough to reopen their wallets to fund public projects, which could furnish muni-hungry investors with more ample supply of bonds.

Investing.com: – The muni supply spike: Bond buyer visible supply. – The Bond Buyer Visible Supply represents the amount of municipal bonds to be offered by dealers over the next 30 days. This week we have seen a spike of over $18 billion in supply. This spike is in a market that has been averaging about $8 billion in new issuance. It averaged much less earlier in the year.  

 

Treasury Bonds

ETF Trends: – Investors can’t get enough of Treasury bonds, ETFs. – U.S. government bonds and Treasuries-related exchange traded funds advanced for the fifth straight day Wednesday as mixed economic data, low inflation and foreign investors helped keep the rally going.

WSJ: – U.S. Government bonds pressured by corporate bond supply. – Treasury bonds pulled back on Tuesday for a second straight session as the market was weighed down by new corporate bond sales.  

 

Investment Grade

Bloomberg: – U.S. corporate bond sales pass $1.5 trillion for annual record. – U.S. corporate bond sales swelled to an annual record as a late-year rush by borrowers to lock in low interest rates pushed offerings for 2014 pass $1.5 trillion.  

 

High Yield Bonds

FT: – Refinery and pipeline junk debt outshines. – (Subscription) Not all junk rated bonds in the US energy sector have come under fire during the rout in oil prices, with pipelines and refineries outperforming as investors rotate their holdings across the market.

Income Investing: – High yield energy sector loses 3.4% in November. – November couldn’t end soon enough for the high-yield bond market, particularly its energy sector, which lost 3.38% last month, according to a benchmark Bank of America Merrill Lynch index, and is now down 7.5% over the past three months.

Morningstar: – Junk bonds: Go active, or don’t go at all. – With a few exceptions, it’s a terrible mistake to own a passive fund that tracks an illiquid market, writes Morningstar’s Sam Lee.

Bloomberg: – Junk bonds funding shale boom face $8.5 billion of losses. – Bond investors who helped finance America’s shale boom are facing potential losses of $8.5 billion as oil prices plummet by the most since the financial crisis.

Minyanville: – Will energy kill high-yield? – Since energy debt comprises some 16% of the high-yield market (I am not sure what bonds are factored into that percentage, or where it comes from, but I’ll take it on faith), its collapse will tank everything, and in no time we will be back in a 2007-2008 style crash. Let me offer some figures that put the energy problem into perspective.  

 

Emerging Markets

ETF Database: – Between a rock and a hard place: Outlook for Brazil. – Investors in Brazil have had the dubious pleasure of undergoing one of the more stomach-churning rides in 2014. Although the sell-off of the past few months has pummeled valuations, bargain investors might be better off looking elsewhere for a more promising emerging-market opportunity. Here are the reasons why.

Bloomberg: – Emerging market distressed debt loses most since 2008. – Losses in emerging market distressed debt have mounted to the worst since the global financial crisis led by Indonesian coal miner PT Bumi Resources and ZAO Russian Standard Bank.  

 

Investment Strategy

Benzinga: – Potential moves to make with bonds going into 2015. Bonds have had a very good 2014 as the 10 year treasury yield decreased from 3.0 percent on January 1 to a current yield of around 2.35 percent. Many investors and money managers are now wondering what to do with their bond allocations as 2015 approaches. Here are thoughts on some major bond classes, keeping in mind balance risk reduction and maintaining some positive returns over the next 12 months.

Income Investing: – For 2015, stick with munis, junk bonds. – Year-ahead outlook season continues today with Janney Montgomery Scott urging investors to focus on muni bonds and high-yield corporates in 2015, as other areas of the bond market look pretty fully priced already.

Benzinga: – How international bond ETFs can add diversification. – International bond ETFs are a great option to increase diversity within a portfolio.

Kiplinger: – Income investors, don’t fret about higher interest rates. – Much of your portfolio’s performance will depend on the kinds of bonds you own and their maturities, which should be a lot less than 10 years.  

 

Bond Funds

Reuters: – DoubleLine, Pimco rival, posts 10th straight month of inflows. – Jeffrey Gundlach’s DoubleLine Funds, an investment firm that has been a major rival of bond fund Pimco, reported its 10th consecutive month of inflows in November, totaling $1.16 billion, following a monthly inflow of $2.38 billion in October, the highest this year.

Zacks: – 2 Government bond funds to buy now. –  For investors interested in Government Bond funds, we pick 2 top-ranked funds here. The following funds carry aZacks Mutual Fund Rank #1 (Strong Buy) as we expect the funds to outperform its peers in the future.

Zacks: – 5 Best-ranked diversified bond funds set to beat peers. – We share with you 5 top rated diversified bond mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect these mutual funds to outperform their peers in the future. To view the Zacks Rank and past performance of all real estate funds, investors can click here to see the complete list of funds.  

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