Bond Sell-off Different This Time…The Million Dollar Illusion….What’s Eating Your Munis… and more!

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Business Insider: – A strange occurrence in the derivatives market suggests the bond sell-off is different this time. – The phrase “this time is different” doesn’t usually spark very positive reactions. But I don’t care because there’s one thing about the market these days that makes me think that something is strange when compared to previous bond market sell-offs.

NY Times: – For Retirees, a million-dollar illusion. –  For people close to retirement, the problem is acute. The conventional financial advice is that the older you get, the more you should put into bonds, which are widely considered safer than stocks. But consider this bleak picture: A typical 65-year-old couple with $1 million in tax-free municipal bonds want to retire. They plan to withdraw 4 percent of their savings a year — a common, rule-of-thumb drawdown. But under current conditions, if they spend that $40,000 a year, adjusted for inflation, there is a 72 percent probability that they will run through their bond portfolio before they die.

WSJ: – What’s eating your munis? – Municipal bonds are beginning to look tempting—but investors who buy munis in haste can unwittingly hand over their first year’s worth of income to their broker. Fortunately, with a few simple steps, you can control that risk and maximize your net return.

Learn Bonds:  – Time to buy munis. – After a difficult month of May, municipal bond investors are now faced with what has historically been a difficult start to June. On a positive note, the start of summer in late June typically ushers in one of the more attractive times of the year to own municipal bonds.

Quoth the Raven: – Make the right moves when the Fed stops QE. – With more and more pundits predicting the end to QE, how should you structure your portfolio to withstand the inevitable rise in bond yields that would ensue.

FT: – Who’s afraid of an EM sell-off? Investment banks should be. – Emerging markets have kept global investment banks pretty busy over the last couple of years. The boom – first in mergers and acquisitions and stock market listings and more recently in debt issuance from EM companies and sovereigns – has provided plenty of top-line growth for western banks, as they sought to rebuild in the wake of the global financial crisis. But can the good times keep on rolling?

WSJ: – Why the Fed hates the word ‘tapering’. – Federal Reserve officials really don’t like the word “tapering” — one of the most popular buzzwords in the markets these days. The hangup for Fed officials is the word “tapering” suggests a slow, steady and predictable reduction from the current level of $85 billion a month at a succession of Fed meetings, say to $65 billion per month, then to $45 billion and so on. And that’s not necessarily what Fed officials envision.

Wall St Pit: – The SEC’s race to restore municipal bond integrity. – The Securities and Exchange Commission is concerned that tax-exempt bond investors are being sold a collection of fairy tales.

Indexuniverse: – The Global Bond ETF Search: Part 2. – If you look hard enough, there are a number of ETFs targeting the global bond space, but it’s worth looking more closely at what they hold, because they are different from one another.

WSJ: – Cost to insure company bonds eases on mixed data. – The cost to insure company bonds in the U.S. rose moderately Friday morning but then fell after a mixed jobs report.

Washington Post: – Can investors make money in social services? – Six states are moving to develop so-called social impact bonds, marking a broad expansion of an experiment that taps private investors to fund capital-hungry social programs.

FT: – Why bonds aren’t heading for a repeat of 1994. – Like many bond investors, I  remember 1994  well. I was working on the gilt desk at the Bank of England, and having seen only steadily falling yields in my career, it felt like carnage. But you might be surprised at how modest the losses for bond investors actually were that year.

ETF Trends: – Plunging TIPS ETF seen bullish for stocks, bearish for gold. – The iShares TIPS Bond ETF (NYSEArca: TIP) is down 7% from its all-time high with rising Treasury yields and falling inflation combining to weigh on the $12 billion exchange traded fund. The sell-off in the inflation-indexed bond ETF could be a bullish signal for equities and a negative indicator for gold and other safe-haven assets, analysts say.

Richard Travia: – History repeats itself in the high-yield bond market. – A disadvantageous game of musical chairs in the high yield bond market is occurring.

Bloomberg: – Dirt-bond sales near ’07 peak belie IRS tax ruling. – Demand for $6 billion of bonds sold to finance Florida housing developments shows no signs of waning even after the Internal Revenue Service said debt issued for a project of billionaire H. Gary Morse isn’t tax-exempt.

Telegraph: – When the bond bubble finally bursts, a lot of investors will get hurt. – The bond bubble isn’t a bubble in the classic sense of markets holding unrealistic expectations (as they did, for instance, during the dotcom boom). It has arisem as a result of the correct perception of official policy. But the extent of the distortion this has caused in the bond markets is quite remarkable.

Bloomberg: – Bond buffer seen in demand for swaps collateral. – New collateral rules for hedge funds, insurers and others in the $633 trillion over-the-counter derivatives market are poised to boost demand for U.S. Treasuries, potentially slowing rising yields as the Federal Reserve considers scaling back unprecedented stimulus.

WSJ: – The best place to hold REITs and MLPs: An IRA or a taxable account? – Gregory Zuckerman answers the following question from a reader. What is the best account to hold REITs and master limited partnerships? Is there a prohibition against holding these shares in a rollover IRA? Is there a penalty or tax when these equities are sold?


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Simon G

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