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Treasury prices rose this afternoon as bond investors breathed a sigh of relief following today’s Monetary Policy Statement, in which Fed officials nudged up their projections for short-term interest rates in 2015 and 2016 but tempered this by slightly reducing their outlook for interest rates in the long-run.
Yields on two-year notes, more sensitive to changes in expectations for interest-rate policy than longer-maturity debt, declined from the highest level since September after a report showed consumer prices rose more than forecast last month.
The two-year yield declined 5.02 percentage points, to 0.46 percent after rising yesterday to 0.49 percent, the highest since Sept. 6.
“The market got a little ahead of itself yesterday with the strong inflation data and more bearish expectation toward the Fed, but the Fed needs to see more to change direction,” said Jason Rogan, managing director of U.S. government trading at Guggenheim Securities, a New York-based brokerage for institutional investors.
“The Fed is not at a point where they will be talking about raising rates any time in the near future.” He said.
The 10-year note yield fell 1.98 percentage points, to 2.60 percent, according to Bloomberg Bond Trader data. It added six basis points yesterday, the largest gain since June 3.
Todays Other Top Stories
LearnBonds: – Should you own emerging markets bonds? – In the bond world, investors can spread risk by investing in individual bonds, bond funds, corporates, municipals, Treasuries, junk, and yes, international and emerging markets bonds. I would opine, however, that just because there is the opportunity to invest in something does not mean you should necessarily invest in it.
MarketWatch: – First Volcker-compliant TOB helps muni market liquidity. – The development of a tender option bond (TOB) structure that complies with the Volcker rule paves the way for tax-exempt money market funds to remain a buyer of municipal bonds.
BondBuyer: – Stiff competition led to Lebenthal’s muni banking exit. – Competition over a shrinking pool of business claimed another victim with this week’s shuttering of Lebenthal & Co.’s municipal underwriting and institutional sales arms.
Vanguard: – Webcast replay: Investing in today’s municipal bond market. – From credit quality to the yield curve and problems in Puerto Rico and Detroit, there’s much to consider when evaluating municipal bonds. In this live webcast aired May 22, 2014, Vanguard fixed income and investment experts Chris Alwine and Daniel Wallick detailed the challenges and opportunities of investing in today’s municipal bond market.
FT: – Bond star Michael Hasenstab warns on U.S. debt. – Ukraine’s clash with Russia, which intensified suddenly at the end of February, frightened many global investors. But for Michael Hasenstab, star global bond portfolio manager at Franklin Templeton, it was an opportunity.
FT: – Brace for bond market bumps ahead. – The decline in government bond yields across the major markets has been one of the main surprises this year. Why has this happened?
Invesco: – Is the bond market worried about equities? – The recent rally in Treasuries seems at odds with current economic conditions. As outlined in my June commentary, “Don’t Fight the Central Banks,” the economy is showing signs of reacceleration. What is the bond market telling us?
Bloomberg: – Equity ETFs lag behind bonds by most in four years. – Investors’ appetite for U.S. equity exchange-traded funds has weakened to levels not seen in four years as demand for safety drove more money to fixed income.
FT: – High yields lure foreign buyers to Treasuries. – Global investors have piled into US government bonds this year, drawn by the allure of high yields.
Bloomberg: – Bond traders confront inflation from vulnerable positions. – The green shoots of inflation are coming at about the worst time for corporate-bond investors. A measure of the U.S. investment-grade corporate bond market’s sensitivity to rising interest rates, known as duration, is approaching the record high reached last year before a selloff in fixed-income assets wiped $230 billion from the value of company debt, Bank of America Merrill Lynch index data show.
High Yield Bonds
Investing.com: – A technical look at junk. – Notice the tendency of junk bonds to form a significant cycle trough about every two years: March 2009, October 2011, June 2013. If this pattern holds, the next 2-year cycle trough will be due about mid-2015. The expectation of a strong move down into mid-2015 fits nicely with the Elliott Wave count as shown.
Reuters: – Low global yields, short memories propel frontier debt revival. – Investors are returning to the riskier, less developed bond markets of Africa and other frontier economies, burying memories of past setbacks and plunging in after global yields failed to rise as much as expected.
WSJ: – Flows return to emerging markets. – A fresh wave of investment inflows is taking the pressure off some emerging-market governments that had at long last started to tackle economic overhauls.
Reuters: – Vanguard bond head warns of risk in yield hunt. – Vanguard Group Inc’s new bond chief on Wednesday said investors could be ignoring warning signs in less stable countries in their search for yield.
WSJ: – Aon CATstream(TM) product expedites catastrophe bond coverage for cedants. – Aon Benfield Securities, the investment banking division of global reinsurance intermediary and capital advisor Aon Benfield, today announces the launch of CATstream(TM) — a new client facility that offers cedants faster and more efficient access to capital markets capacity for catastrophe risk.
AllianceBernstein: – Multi-sector plan can help avoid the crowd in credit. – Chasing returns into—and out of—specific credit sectors happens so often in bond markets that it hardly rates a raised eyebrow. But running with the herd can be risky, which is probably why Federal Reserve officials reportedly have discussed slapping exit fees on bond funds to avoid a disorderly rush to the exit.
CNBC: – Which bonds should you buy now? – The future direction of interest rates and whether bonds are expensive or cheap may be up for debate, but some analysts are stepping up with their bond picks, and emerging Europe is among the favorites.
Zack’s: – Zacks #1 Ranked government bond mutual funds. – 5 top rated government bond mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect these mutual funds to outperform their peers in the future. To view the Zacks Rank and past performance of all government bond funds.
ETF.com: – Pimco preps active ETFs. – Pimco plans five actively managed fixed-income ETFs spanning the universe of floating-rate, low-duration, senior-loan and mortgage-backed bonds, hoping investors will want strategies that will help dampen interest-rate volatility and provide exposure to a recovering housing market.
BB: Dick Larkin: “Jim Lebenthal is muni business’ best salesman: not bc he sells bonds, but bc he ‘sells’ idea that bonds help grow America”
— Cate Long (@cate_long) June 18, 2014
PREPA cut to BBB- by S&P, on CreditWatch Negative. Not fans of the line of credit situation going on to buy oil. #PuertoRico
— Brian Chappatta (@BChappatta) June 18, 2014
Another uneventful state budget season is winding down with 40 states having new fiscal year budgets already in place. #munis
— AnthonyValeri (@Anthony_Valeri) June 18, 2014
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