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It seems talk of a bond bear market was a little premature. In the run-up to September when the Fed was supposed to announce the tapering of its bond purchase program, the bond market collapsed as investors fled bonds on the threat of rising interest rates. This prompted many analysts and investors, including Bill Gross, to say the 30 year bond bull market is over.
But a month is a longtime and how things have changed. September came and went, with no taper announcement. Then came the governments fiscal cliff and debt ceiling debacle, which dealt a further blow to the bond bears.
Now there are fears that tapering won’t start until March next year, and there are even those who say it will never start. This has led to a miraculous recovery in the bond market, with many funds erasing all the losses they incurred during the run-up to September.
So is the bond bear merely in hibernation for the winter, only to return with a vengeance in the spring? Or has he been shot by a dysfunctional government intent on wrecking the world economy. I guess we’ll have to wait for Februarys debt ceiling part II, to find out. Either way, anyone who abandoned bonds altogether is looking pretty foolish now. So let that be a lesson, should the bond bear return in the spring.
Todays Other Top Stories
Bloomberg: – Biggest supply wave since July means Treasuries win. – The U.S. debt-ceiling deal has unleashed the biggest wave of municipal borrowing since July, driving local bonds to the cheapest in almost two months versus Treasuries and luring buyers such as Deutsche Bank AG’s private-wealth unit.
WSJ: – Puerto Rico bonds a drag on client portfolios. – To the dismay of some financial advisers, the selloff in Puerto Rico municipal bonds has dinged many client portfolios. Advisers who believe the bonds will recover are now selectively buying shorter-term issues they consider better priced with little risk.
Anthony Valeri – LPL Financial: – Municipal ups and downs. – The October soft spot is part of the ups and downs municipal investors experience following a significant pullback. Despite the near-term supply challenges, we believe there is a good case for longer-term optimism and continue to find municipal bonds attractive.
Standard and Poor’s: – S&P affirms BBB- rating for Puerto Rico. – Standard and Poor’s Rating Services has affirmed its BBB- rating and negative outlook on the commonwealth of Puerto Rico General Obligation (GO) and appropriation bonds.
Bloomberg: – SEC investigating bond funds with Puerto Rico debt. – The U.S. Securities and Exchange Commission is investigating U.S. mutual funds with holdings in Puerto Rico debt, The Bond Buyer reported on Thursday.
Learn Bonds: – Risks of rising interest rates for long term bond holders. – The general consensus is that interest rates in the United States are expected to move upwards over the next year or two. This possibility raises a concern for those individuals that have invested in longer-term bonds in the hopes of gaining a higher yield for their portfolios.
Bloomberg: – Foreigners sold U.S. assets as China reduces Treasuries. – Foreign investors were net sellers of U.S. long-term portfolio assets in August as China reduced its holdings of Treasuries to a six-month low.
Bloomberg: – Legg Mason’s brandywine shuns China for European junk bonds. – Brandywine Global Investment Management LLC, a unit of Legg Mason Inc., is avoiding Chinese high-yield debt in favor of bonds from Europe, which economists bet will return to growth after five quarters of contraction.
Bloomberg: – Junk bonds to lose 1.5 percentage-point QE cushion, fridson says. – Investors in junk bonds will lose a yield cushion of more than 1.5 percentage points as the Federal Reserve winds down its unprecedented quantitative easing program that’s bolstered credit markets for five years, according to Martin Fridson.
ETF Guide: – Will junk bonds bless or curse rest of the market? – There have been many themes throughout this market recovery, now in its fifth year. The Fed’s ever present invisible hand, interest rates that remain near historical lows, and an investor persistently searching for higher yields are just a handful of the many mega themes that have shaped these markets. However, with most things in life there are usually unintended consequences, both good and bad. One of these unintended consequences is the extreme correlation now among most major asset classes.
Evariste Lefeuvre: – The junk bond market is not an indicator for Treasurys. – The tapering threat dealt a blow to the junk bond market this summer. As can be seen below, the ongoing negative relationship between US Treasury and junk bonds turned positive, meaning both asset classes suffered significant losses. The performance gap seems to have been bridged recently, suggesting a return to normal.
Artemis: – Catastrophe bond price return index slows rise in October. – The inexorable rise of the Swiss Re Global Cat Bond Performance Price Return index, which tracks the price return for all outstanding USD denominated cat bonds and has been rising consistently since late July, has slowed as we move through October.
Stockhouse: – J.P. Morgan launches new emerging markets fixed income index. – J.P. Morgan today announced the introduction of a new emerging markets fixed income index, the J.P. Morgan Middle East Composite Index, that holistically captures the Middle Eastern U.S. dollar-denominated debt market covering sovereign, quasi-sovereign and corporate issuers. The MECI represents 73% of the Middle Eastern US dollar external debt asset class, tracking 61 issuers and 167 instruments spanning 10 countries. The new addition to the J.P. Morgan family of fixed income indices has a total market value of $156.5 billion.
Business Insider: – The real bubble is in the bond market – 700 years of market data. – Central bank policies have caused a bubble is in bond markets – not surprising as those are the instruments that are bought before the funds end up back with the central bank in the form of excess reserves. Bond yields have rarely been this low in the period since 1800. Indeed, the only other time was when the Fed was also manipulating the market during and after WW2.
Benzinga: – International bond ETFs breakout. – Both developed and emerging market international bond ETFs are offering higher yields as well as more upside potential.
Cranky: – Bonds: A dividend growth investor’s best friend? – What do dividend growth investors like most? The growth part of the equation – the rising income. What do bonds deliver? Income. What if the dividends and bond income in a diversified portfolio were both increasing over time? Well that’s the proverbial win – win.
IndexUniverse: – 10 ETF filings with blockbuster potential. – Launching blockbusters in a universe of 1,500-plus ETFs is becoming increasingly difficult, but some issuers are onto something big. It’s time to comb through all those filings for those diamonds in the rough.
Bond market rate hike expectations now slightly more benign than Fed guidance. Futures indicate year-end FF for '15 & '16 of ~0.625% & 1.75%
— Anthony Valeri (@Anthony_Valeri) October 24, 2013