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Bill Gross – Yellen To Be More Accommodative and Today’s Other Top Stories

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Bill Gross appeared on “Bloomberg Surveillance” this afternoon to talk about the state of the economy and all things bonds with Tom Keene. The big takeaway is that Gross, thinks proposed incoming Fed chairman Janet Yellen will set a more accommodative policy compared to that operated under Ben Bernanke.

The U.S. is growing slowly and inflation levels are at “unacceptable, dangerous territory at the moment,” Gross said. The Fed is “moving into forward guidance in a big way, and at some point we may expect to see a nominal GDP target as well as a higher inflation target in the United States.”

Gross, went on to say that he expects the central bank to add more stimulus even after this mornings Non Farm Payrolls report, which showed that the U.S. economy added 204,000 jobs in October, far surpassing expectations for a 125,000 increase.

The Fed is understood to be studying a proposal to lower the unemployment threshold from 6.5% to 6.0% before it raises interest rates. This in effect constitutes easing in that it implies low rates for a longer time.

Gross reiterated his recommendation that investors purchase shorter-term Treasuries as the Fed weighs tapering and quantitative easing and the market comes to terms with how long it will take the central bank to begin raising interest rates.

 

Todays Other Top Stories

 

Municipal Bonds

Bloomberg: – Detroit bond insurer sues over proposal to cut payments. – National Public Finance Guarantee Corp. and Assured Guaranty Municipal Corp. (AGO) sued Detroit, claiming a proposal by the city’s emergency manager to cut payments to general obligation bondholders is illegal.

WSJ: – With muni-bond funds, you need to know what you own. – Tom Brakke: Recent events have made it clear that you need to know what [munis] you own. Therefore, to the extent it’s feasible, buying individual bonds of issuers that have a sound financial structure is a good strategy. However, individuals often pay too much to the brokers of municipal bonds when buying them (and get too little if they have to sell them before maturity).

WSJ: – Forget muni-bond defaults. It’s interest rates that are risky. – Municipal-bond funds have seen heavy withdrawals in recent months. What’s your current thinking on muni investments for higher-income investors?

BusinessWeek: – Blight-fighting bonds revived in Philadelphia plan. – Philadelphia wants to create its first blight-fighting district in eight years, financed by a type of municipal debt for which sales have dwindled to a fifth of the pre-recession pace.

BondBuyer: – Pre-emptive posture: Muni experts get defensive at year end. – Municipal managers and strategists, still reeling from Detroit’s bankruptcy, the surge in Puerto Rico yields, and a mid-year sell-off that was the worst in a quarter century, are getting their portfolios ready for the next expected hurdle as 2014 approaches — another spike in interest rates.

Bloomberg: – Has California really turned the corner? – Mark Joffe, principal consultant for Public Sector Credit Solutions, Gabriel Petek, analyst for Standard & Poor’s, and Miguel Santana, administrative officer for the City of Los Angeles, participate in a panel discussion about the performance of California Governor Jerry Brown and the state’s municipal credit rating. Susan Goldberg moderates the panel at the Bloomberg Link State & Municipal Finance Conference in New York.

Municipal Finance Today: – Voters send mixed messages on municipal bonds. – Texas voters approved a $2 billion water bond program, the largest single bond-related issue on the nation’s ballots Tuesday.

WSJ: – How to structure municipal bond investments. – There are still opportunities for high tax-bracket investors in the municipal-bond market. However, a combination of concerns over low yields and credit quality make selecting the right municipal bonds challenging.

Business2Community: – Municipal debt crisis far from over. – We have seen cities like Detroit and others in California tell their municipal bonds investors, “Sorry, we can’t pay you.” The reason behind this? Their budget deficit was out of control, they reached the breaking point, and they filed for bankruptcy.

American Century Blog: – What’s happening in the municipal bond market? – 2013 has been a volatile year for the municipal bond (muni) market, in contrast to two consecutive prior years (2011-12) of outperformance. That two-year rally followed the late 2010/early 2011 sell-off triggered in part by a forecasted wave of muni defaults. No such wave materialized, but isolated high-profile events have continued to crop up, including Detroit and Puerto Rico.

Schwab: – Schwab bond insights: State municipal bonds: Evaluating where to invest. – “How can I determine which states to invest in?” This is one of the most common questions about municipal bond investments. While the answer will depend on the individual’s specific situation, it’s also important to know the characteristics analysts look at to assess the relative strength of each state.

 

Education

Learn Bonds: – Bond buying criteria. – So you want to buy a corporate bond? There are many factors to consider as you decide on exactly which bond(s) you are going to reach for. Buying individual bonds carries a lot more risk than most people may realize, because if something unexpected occurs, you have no diversification That’s why I always prefer bond ETFs or mutual funds.

 

Treasury Bonds

MarketWatch: – Treasury yields jump on brighter economic outlook. – A robust jobs report caught the Treasury market by surprise on Friday, sending benchmark yields sharply higher as investors began to price in nearer-term expectations for when the Federal Reserve could start scaling back its bond-buying stimulus.

 

Investment Grade

Donald Van Deventer: – BP PLC bonds: An updated market view. – The BP PLC subsidiary BP Capital Markets PLC is one of the most heavily traded bond issuers in the domestic U.S. corporate bond market. Bonds issued by BP Capital Markets PLC have a guarantee of the parent BP PLC. For convenience, we discuss both legal entities today as if they were indistinguishable from a bondholder’s perspective. We analyzed BP PLC group bonds on August 7, 2013 using data as of August 6.

 

High Yield

Forbes: – High yield bond funds see first cash outflow since September. – Retail cash flows to high-yield funds turned negative in the week ended Nov. 6, with a net $879 million withdrawn, according to Lipper, a division of Thomson Reuters . This is the first negative reading in the weekly figure dating back nine weeks, and it wipes out the $753 million inflow last week.

WSJ: – Overheard: Junk-bond party. – Michael Milken, eat your heart out. U.S. high-yield issuance for the past week totaled $15.4 billion, a new record according to Dealogic. World-wide issuance set its own high, $16.6 billion, besting the previous high of $16 billion set earlier this year.

Reuters: – U.S. bonds surprise by hanging tough after rough summer. – The U.S. bond market is enjoying a resurgence, to the surprise of investors who just weeks ago were resigned to the idea that 2013 was going to be the worst year for bonds in more than three decades.

Forbes: – Short duration high yield bonds, an underappreciated income opportunity. – Fixed income investors, accustomed to years of both investment income and uninterrupted gains, are now asking: how can I balance my need for income in the face of interest rate-driven price volatility? Enter short duration high yield bonds.

HighYieldBond.com: – JC Penney bonds, CDS tighten after co. shows October sales increase. – J.C. Penney debt and shares edged higher, just as the cost of default protection contracted, after the struggling retailer updated investors on its continued turnaround progress, showing a gain in store sales for the first time in years. JCP shares traded up roughly 4%, to $8.03, while its 5.65% notes due 2020 edged up half a point, to a 77 mid-market, according to sources.

 

Emerging Markets

Farm Futures: – Emerging markets worry over tapering. – Slowing the pace of bond buying by the Federal Reserve, as the U.S. economy begins to show signs of life, has emerging market economies around the globe concerned.

Bloomberg: – Emerging markets super-cycle promises growth. – The emerging-markets juggernaut that propelled the globe out of the 2009 recession is taking a pause rather than running out of steam.

Emerging Markets Daily: – Investors took profit, capital flowed out of EM equity funds. – The week ending November 6 reversed the trend of capital inflow into emerging markets equities, data from EPFR show.

Reuters: – EM issuers rush to sell. – With year-end approaching, the rush to sell emerging markets bonds is intensifying. But some cracks are beginning to appear in the primary market and might deepen as rates spike again.

 

Bond Funds

Reuters: – U.S. bonds surprise by hanging tough after rough summer. – The U.S. bond market is enjoying a resurgence, to the surprise of investors who just weeks ago were resigned to the idea that 2013 was going to be the worst year for bonds in more than three decades.

Financial Chronicle: – Mutual funds trim exposure to financial, capital goods stocks. – Bond fund managers toned down average maturity or duration in the months of June and July, with bond yields hardening substantially. However, fund managers increased duration in the month of August, and maintained similar levels of duration at the end of September as well.

Reuters: – With new fund, Eaton Vance bond manager tops market. – Not long ago, Kathleen Gaffney was considered the obvious successor to bond guru Dan Fuss, with whom she co-managed the $21.9 billion Loomis Sayles Bond fund for nearly 20 years.

ETF Strategy: – ProShares lists interest rate hedged investment-grade bond ETF. – ProShares, a US-based provider of alternative. exchange-traded funds, has announced the launch of ProShares Investment Grade – Interest Rate Hedged ETF (IGHG), the first investment-grade bond ETF in the United States that provides a built-in hedge against rising interest rates.

Focus on Funds: – ‘Wealth destruction in bonds can be an independent event’. – The notion that investor’s exit from the bond market should mean more money flowing into stock funds is one of those 2013 chestnuts. It’s how fund managers console themselves over this year’s crummy bond-market performance, and also pretty much the key premise of the “Great Rotation” – the idea that the end of a three-decade bull market in bonds is good news for stocks.

Deal Book: – Adding up the risks in floating rate debt. – It’s basic corporate finance that bonds involve two basic risks: interest rate risk and payment risk. So what happens if a risk-free issuer puts out floating rate debt? We are about to find out, since the Treasury Department announced this week that it would soon start issuing two-year debt that would pay interest at the rate of the most recent 13-week Treasury bill rate, plus a spread set at the time of the initial sale. I think we can assume that the spread will be quite small, perhaps nonexistent.

Reuters: – As high-yield supply slows, risky ‘Payment-In-Kind’ Bonds tempt investors. – Investors’ search for juicier coupons has fuelled a surge in payment-in-kind toggles over the past few weeks, but their thirst for yield may in some cases be clouding their judgement.

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