Bonds Boosted by Fed Minutes and Today’s Other Top Stories

Federal Reserve - Interest Rates

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Bonds strengthened Wednesday after an earlier pullback following the release of the minutes from September’s Federal Reserve Open Market Committee meeting showed that Fed officials have become more concerned about weak growth overseas (registration) and the impact of a strengthening U.S. dollar on the domestic economy.

In recent trading, the benchmark 10-year note was 3/32 higher, yielding 2.343%, according to Tradeweb. Yields fall as prices rise.

“The bond market is supported by lower expectations for global growth and inflation,” said Guy Haselmann, head of U.S. interest rate strategy at Bank of Nova Scotia in New York. The world “is adjusting to greater uncertainties” over global growth.

Bond prices pulled-back earlier following weak demand from the U.S. government’s auction of 10-year Treasury notes, the second of three debt auctions this week.

The Treasury Department auctioned $21 billion in 10-year notes at a high yield of 2.381 percent, the lowest since June 2013. The low yield ebbed demand as traders cautiously awaited the minutes from the Federal Open Market Committee (FOMC)’s meeting in September.


Todays Other Top Stories

Learn Bonds

Learn Bonds: – Bond funds or individual bonds? That is the question. – As investors peruse their options in the fixed-income space, one of the major questions they’ll be faced with is whether to utilize funds either via open- or closed-end funds, ETFs, or individual issues. Each option offers its pros and cons, and the answer is probably not clear cut from investor to investor.


Municipal Bonds

Bloomberg: – Puerto Rico lawmakers to consider G.O. bonds, Senate head says. – Puerto Rico lawmakers plan to work on legislation in the next couple of months to allow the junk-rated commonwealth to sell general-obligation bonds, Senate President Eduardo Bhatia said.

WSJ: – Puerto Rico to sell $1.2 billion in notes on unusual terms. – (Subscription) Puerto Rico is expected to sell up to $1.2 billion of short-term notes this week to large banks that have agreed to hold the debt until it matures in June, forestalling the heavy selling that followed a bond sale in March.

Reuters: – Puerto Rico passes legislation ahead of bond deal. – Puerto Rico enacted legislation on Tuesday providing additional guarantees to investors who purchase Tax Revenue Anticipation Notes (TRANS) issued by the U.S. commonwealth.


Bond Market

FT: – Three’s company for bond trading venture. – (Subscription) The battle being waged to reshape the way bonds are traded on Wall Street has gained intensity with the departure of three fixed income specialists from Goldman Sachs, Barclays and Citadel to create a new electronic platform.

Kevin on the Street: – U.S. Treasuries are trading electronically, but we still need bond traders. – I recently spoke with Bloomberg TV about a recent Greenwich Associates research report that examined the growth in electronic trading of US Treasuries by US investors. The US Treasury market is an obvious one for electronification – the products are standard, liquid and the number of market participants is large. But relationships still matter, and so don’t expect the e-trading growth to leave all of the traders looking for jobs.

MarketWatch: – The real kings of the bond market are banks. – The bond market’s innovation machine is churning away. But for all of the ideas and new products that are emerging to help market participants more easily trade debt, the hallowed role of the big banks remains largely a cushy regal spot.


Treasury Bonds

WSJ: – U.S. Government bonds gain on global growth concerns. – (Subscription) Treasury bonds strengthened for a second straight day on Tuesday as fresh worries over global economic growth boosted demand for ultrasafe U.S. government debt.

FT: – Stick with consensus and sell Treasuries. – To generate good returns, investors usually need to go against the grain. This is particularly true of the U.S. Treasury market, where federal funds rate futures tend to precisely reflect strategists’ consensus expectations. Today, however, investors should consider trying to make money by going with the grain and play the consensus view that Treasury yields will rise sharply from here.


Investment Grade Bonds

FT Alphaville: – Houston, we don’t have a corporate bond liquidity problem. – (Subscription) Gary Jenkins at LNG sets out his views about what might happen to the corporate bond market once the Fed begins pulling back liquidity seriously. It’s all down to the vanquished liquidity in the market already.


High Yield Bonds

Chief Investment Officer: – Risk off, with a vengeance. – Investors are pulling money out of risk assets as the growth they had predicted via central bank activity has failed to materialize, fund flow data has shown.

IFR: – Investors wary as energy sector grows in high-yield bonds. – Energy companies have become a larger presence in the US high-yield bond market this year, relying on debt to fund capex as they expand exploration and production activity, but months of heavy issuance and weaker oil prices are taking their toll.

Kiplinger: – Handle junk bonds with care. Because interest rates are so low today, the extra income you get from high-yield, or “junk,” bonds looks tempting. But before you buy in to junk, you should know what you’re getting yourself into.

ETF Trends: – Why junk bond ETFs may see more pain ahead. – High-yield, junk bond exchange traded funds have been experiencing large swings over the past few months and the asset class could remain vulnerable as a combination of Federal Reserve policy, low liquidity in the underlying market and crowded trades fuel volatility.

Trader Skillset: – The bond bubble is in junk bonds, not Treasuries. – “The bond bubble is going to pop. But the bond bubble I’m talking about is in junk bonds, not Treasury bonds.”  -The Wolf.

Bloomberg: – Dudley sees froth, IMF sees froth, bond investors don’t. – What’s an investor to do when everyone from the U.S. Federal Reserve to the International Monetary Fund say they see bubbles developing in markets? The answer, apparently, is to keep buying.


Emerging Markets

ZeroHedge: – The reason behind the latest emerging market freakout, in two charts. – Confused by the most recent collapse in Emerging Markets, which if it hasn’t approached the tumble experienced in the first Taper Tantrum, will do so soon enough? Don’t be. The following two charts should put everything in perspective and yes, it has nothing to do with the soaring US Dollar and everything to do with the slowdown in Chinese credit creation.

MoneyBeat: – Emerging Markets: Out of love and in debt. – The investment tide is turning against emerging markets, exposing some worrying fundamentals.


Catastrophe Bonds

Business Insurance: – About $2.5-$3 billion of cat bond, ILS deals likely in fourth quarter. – Paul Schultz, CEO of Aon Benfield Securities, said that the catastrophe bonds and insurance-linked securities market will surely see a surge in the fourth quarter of 2014, reports Artemis.bm citing A.M. Best Co. Inc.


Investment Strategy

InvestmentNews: – Goldman Sachs strategists say investors hold too much stocks and bonds and need to jack up alternatives allocations. – It’s a matter of diversifying rather than dabbling: Adding a few percentage points ‘is not doing anything’.

Income Investing: – Got bonds? If not, you’re poorer for it. – Remember at the beginning of 2014, when the 10-year Treasury note was at 3% and all the forecasts said the benchmark yield had nowhere to go but up? Well, the forecast of 3% turned out to be right–for the 30-year long bond.

InvestorPlace: – Why investors should get back to basics. – We are exiting the eye of the giant financial hurricane that we entered in 2007, and we’re going into its trailing edge. It’s going to be much more severe, different and longer lasting than what we saw in 2008 and 2009. Investors should be preparing for some really stormy weather by the end of this year, certainly in 2015.

Zacks: – Prepare for rising rates with floating rate bond ETFs. – Investors seeking to protect their portfolios against rising rates should consider floating rate bond funds.

Bloomberg: – Three ways to get a steady paycheck long after you’ve retired. – Guaranteed income for life. That was the plan — now the fantasy — during the golden age of American business, when pension plans were the norm. You did your time as a loyal, hard-working employee, retired at 65 and then monthly checks from your former employer rolled in until you died. A modest livelihood was assured without worrying about depleting your savings. Here are three approaches to generating lifetime income for retirees.

Trustnet: – Risks from overweighting bonds have never been greater. – The global head of fixed income at Threadneedle Investments says the prospect of rising interest rates, poor liquidity and the shake-up of the world’s biggest bond manager mean fixed income investors need to tread carefully.


Bond Funds

Reuters: – A thousand miles apart, Janus bond chief Smith embraces Gross. – Before hiring star bond fund manager Bill Gross last month, Janus Capital Group Inc (JNS.N) Chief Executive Dick Weil took care to check with the bond chief he already had, Gibson Smith.

ETF Trends: – Get in on Bill Gross’ second act with this ETF. – Bill Gross has commenced work at Janus Capital (NYSE: JNS) where the former PIMCO chief investment officer will manage a recently launched Janus Global Unconstrained Bond Fund and related strategies.

Market Realist: – Who will benefit from Bill Gross’s move from PIMCO to Janus? – Large and established bond ETFs seem to be the biggest beneficiaries of Bill Gross’s exit from PIMCO to join Janus Capital Group. BlackRock (BLK), the world’s largest ETF player, currently seems to be the biggest beneficiary of Gross’s withdrawal.


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