Bond Prices Fall as Sell-off Abates and Today’s Other Top Stories

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Bond prices fell on Friday as investors poured back into stocks on solid U.S. corporate earnings and rising consumer sentiment.

All the major stock indexes climbed more than 1 percent after a string of upbeat earnings reports eased concerns about the impact of weak global demand on U.S. growth and businesses.

Despite the rally, the S&P 500 index is still on track for a fourth straight weekly decline, its longest losing streak in more than three years. The U.S. benchmark is down more than 7 percent from a record high in September as concerns about the global economy, a resurgent European debt crisis and the Ebola virus led to a furious downturn.

“The reaction the market has had over the past couple of weeks is a bit overdone,” said David Lafferty, chief market strategist at Natixis Global Asset Management, which oversees $930 billion in assets.

“The overall trend of the market is to grind higher on earnings, but the real flashpoint for risk assets is going to be the ECB,” Lafferty said, referring to whether the European Central Bank can deliver a quantitative easing program.


Todays Other Top Stories

Municipal Bonds

Bloomberg: – Puerto Rico bonds set for longest slide since July. – Puerto Rico securities are poised for their longest skid since July as hedge funds and other distressed investors sell the junk-rated island’s debt, which has outperformed the municipal market for most of 2014.

William Baldwin: – Six lessons for muni bond buyers. – Are you in a high tax bracket? Looking for fixed income? Think about tax-exempt bonds, those issued by state and local governments. If you are investing outside a tax-deferred account like an IRA, you’ll probably get a better aftertax return on municipal bonds than on taxable bonds issued by corporations and the U.S. Treasury.

ETF Trends: – Time to temper your municipal bond ETF expectations. – After posting one of their best annual gains since 2011, municipal debt securities, along with related exchange traded funds, may begin to slow down.


Bond Market

MarketWatch: – Volatile bond market crowns winners and losers. – As volatility re-enters the bond markets, not all asset classes are acting the same way.

WSJ: – Trouble ahead for debt funds? – U.S. debt fund managers Oaktree Capital Management and Babson Capital recently posted strong results for their European arms. Babson’s Andrew Godson attributes his firm’s success in Europe to a search for yield from institutional investors, hungry for higher returns.

Citywire: – What happened to bonds? Capitulation, that’s what. – Ben Lord of M&G says the crash in US treasuries on Wednesday says more about bond investors than the global economy.


Treasury Bonds

USA Today: – Foreign holdings of Treasury securities climb. – Foreign buyers of U.S. Treasury securities boosted their holdings in August to a record high. China, the largest foreign owner of Treasury debt, increased its holdings after two months of reductions.

Wall St Daily: – TIPS are unloved and under-owned. – Across the market, people are finding themselves overexposed to richly valued equities and underexposed to volatility-dampening U.S. Treasuries. They ignored the myriad warnings the market was sending throughout the year and were poorly positioned.


Investment Grade

WSJ: – Stocks’ swoon sends chill through corporate-debt market. – (Subscription) Corporate-bond investors have struggled this week to find trading partners for some large orders, causing unusual price drops and raising concerns that trading could freeze in future market turmoil.


High Yield Bonds

S&P Capital IQ: – As market gyrates, high yield bond funds see $549M cash withdrawal. – Retail-cash flow turned negative for U.S. high-yield funds in the week ended Oct. 15, with a net outflow of $549 million, according to Lipper. The figure represents outflows of $565 million from mutual funds against a small inflow of $16 million to exchange-traded funds, or inverse 3% for the week.

MSN: – Are investors ready to feast at junk bond buffet. – Bloomberg’s Lisa Abramowicz examines investors’ growing appetite for junk bonds as Pimco and Blackstone say they are getting ready for big moves into high yield debt. She speaks on “Market Makers.”

ETF Trends: – Bargain hunters snatch up high-yield bonds, ETFs. – The risk-off-induced selling tripped up junk bonds in the fixed-income space, but now, high-yield debt exchange traded funds are attracting some bottom fishers.

Market Realist: – Must-know: Market activity for high-yield bonds. – High-yield bonds—or junk bonds—are rated BB+ or below, according to the ratings guidelines provided by Standard & Poor’s. This implies that the issuers have a lower ability to service their debt obligations. This makes junk bonds more vulnerable to economic cycles—compared to investment-grade corporate bonds (or LQD). They’re higher risk securities, but they also offer higher yields as compensation.

FT: – Junk bonds caught in flight from risk. – (Subscription) A sell-off in US stocks this week hit the junk bond markets as investors shunned the riskier securities amid fears about the outlook for the global economy.

MarketWatch: – Do the reasons for the selloff still exist? – The market appears to be badly oversold, and my view is that we should look for a rebound. There is a key question we need to ask ourselves, though, if that bounce materializes: Are the reasons for this selloff still deteriorating, or was this “it” for this selloff?


Emerging Markets

Foreign Policy: – Emerging markets offer no shelter from the storm. – Though the market panic over the past two days is broadly seen as having been sparked by fears about the European economy, smaller developing countries haven’t escaped the rout.


Investment Strategy

MSN Money: – A good time to check your portfolio. – The recent tremors in the stock and bond markets are unnerving — and may leave average investors feeling as if they should be doing something to protect themselves.

All Star Charts: – This chart still suggests buying bonds and selling stocks. – With the recent hoopla surrounding the bond market and stock market these days, I think it’s important to take a step back and really put things into perspective. A chart that we brought up back in May was the US Treasury Bonds vs S&P500 ratio when it first approached the 2007 lows. I think where we stand today, this chart looks even better than it did then. Granted it’s up 10%, but still.


Bond Funds

Investors.com: – Why Bill Gross went to an unconstrained bond fund. – Recent headlines made a big deal of the fact that star mutual fund manager Bill Gross was taking the reins of an unconstrained bond fund at Janus Capital — Janus Global Unconstrained Bond — after his departure from Pimco. But the term unconstrained is new to many investors. Their key trait is leeway to invest in any fixed income or cash that their managers want.

Dealbook: – Fears that Pimco and other big firms could be unable to unload risky bonds. – As Pimco’s portfolio managers double down on their bet that high-risk bonds will thrive in a world of low interest rates, a growing number of global regulators are warning that the positions being taken on by the big asset management firms pose a broad danger to the financial system.

Businessweek: – Pimco to Blackstone preparing to feast after yield surge. – In a junk-bond market that has been anything but high-yield for almost two years, the world’s biggest debt-fund managers have been stockpiling cash for a selloff. After the worst one in three years, they’re getting ready to pounce.


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