Bonds Tumble After BoJ Extends QE and Today’s Other Top Stories

Quantitative Easing may have been consigned to the history books in the U.S. but the rest of the world is just getting started down the QE road.

In a week when the U.S. Federal Reserve announced it was calling time on its bond-buying programme, the Bank of Japan moved in the opposite direction by increasing stimulus through an expansion of its quantitative easing (QE) programme.

The Bank said it will ramp up the pace of its purchases of Japanese government bonds, stocks and real estate funds so that base money supply increases at an annual level of 80 trillion yen ($730 billion), up from a level of 60-70 trillion yen that it has targeted since unveiling a big new stimulus program a year and a half ago.

Japan’s effort to fight domestic deflation seemingly dates back to the dawn of time, and this represents the latest of endless rounds of quantitative easing there. Similarly the European Central Bank just initiated its own QE program, marking the start of an expected period of exceptional divergence of central-bank policy worldwide.

Following this mornings announcement stocks and the dollar soared (subscription), while Treasury bond prices took a hit. The 10-year note is down 7/32 in price to yield 2.328%, per Tradeweb data, and the 30-year bond is down 18/32 to yield 3.064%.


Todays Other Top Stories

Learn Bonds

Learn Bonds: – Learn about exchange traded debt or ETDs. – You want to learn bonds?  Today we’re going to learn about an investment that are bonds, but trade just like stocks. No, I’m not talking about preferred stocks, but another high yield investment that’s even safer than preferred stock.


Municipal Bonds

Global Investor: – Muni bonds lose favour. – (Subscription) The amount of loans collateralised by municipal bonds in the Markit US dollar tri-party repo dataset has fallen by 20% since the start of the year.

Reuters: – Atlantic City bets on house money for debt deal. – Atlantic City, New Jersey, buffeted by casino closures and its tax base gutted, hopes that playing with house money will let it avoid junk-level borrowing costs at a time when it can least afford them.

WSJ: – Judge approves California city’s bankruptcy-exit plan. – (Subscription) The federal judge overseeing the two-year-long bankruptcy of Stockton, Calif., ruled Thursday that the distressed city can exit court protection without deeper cuts to its pension obligations.

Bloomberg: – Record rally reaches 10th month as volatility rises. – The $3.7 trillion municipal market is set to gain in October, weathering the highest volatility since January to extend a record rally.

Reuters: – U.S. municipal bond funds post $37 million in inflows – Lipper. – U.S. municipal bond funds reported $37 million of net inflows in the week ended Oct. 29, compared with $41 million in inflows in the previous week, according to data released by Lipper on Thursday.


Bond Market

MarketWatch: – Get ready for déjà vu in the credit markets. – The Federal Reserve’s monetary policy outlook was just the slightest bit more optimistic than expected, but that may be all the credit markets need to throw a temper tantrum, according to Bank of America Merrill Lynch.


Treasury Bonds

Businessweek: – The Treasury market fails a stress test. – Recent market volatility has raised concerns that trading could be get even more chaotic when the Fed begins to raise rates from their near-zero levels and investors rush to adjust their portfolios. “The market could not handle large flows without prices moving massively,” Michael Cloherty, head of U.S. rates strategy at RBC Capital Markets (RY), said in an e-mail. “We took that test Oct. 15 and failed.”


High Yield Bonds

Businessweek: – Junk bond bulls outlast October swoon as losses wiped out. – Junk bond investors who held their nerve through this month’s global selloff have recouped all their losses as the riskiest part of the corporate credit market again demonstrates its resilience.

S&P Capital IQ: – High yield bond funds see another big cash inflow, $1.6B. – Retail-cash inflows to high-yield funds were $1.6 billion in the week ended Oct. 29, according to Lipper. It’s a second strong inflow to the asset class, after $1.7 billion last week.

CNBC: – Why who owns which bonds is a risk. – Add a new concern to the stable of high-yield bond risks: ownership of some companies’ issuance has become concentrated in the hands of just a few fund managers.

Market Realist: – Good news for high yield debt ETFs. – High yield bonds and stocks typically have a high returns correlation. Investor momentum trended positive for high yield bonds too, last week. That said, the process of price discovery in high yield debt markets was very much evident. Investors continued to be choosy in their preferences for junk bond and senior loan offerings in the primary and secondary markets.


Emerging Markets

TheStreet: – Nuveen manager sees Mexico, high yield as better bets than europe. – Now that the Federal Reserve has ended its quantitative easing program, investors will need to be more selective with their investments, according to Tim Palmer, portfolio manager for the Nuveen Strategic Income Fund.

Morningstar: – Emerging-markets bonds in a rising U.S. dollar environment. – While a strong U.S. dollar makes it more expensive for emerging-markets sovereigns to repay their dollar-denominated debt, we note that for the most part, emerging-markets countries have ample foreign reserves. In addition, most emerging-markets countries’ U.S. dollar debt is nowhere near levels seen in the mid-1990s–at that time, high levels of U.S. dollar-denominated debt helped contribute to the Asian financial crisis.

FT: – China bonds draw interest from foreign investors despite defaults. – China’s fixed income market suffered a scare in March when the country recorded its first corporate bond default following the demise of solar equipment producer Chaori Solar.


Investment Strategy

Market Realist: – Weighing the pros and cons of unconstrained bond funds. – Before putting your money in an unconstrained bond fund (BASIX), you should be aware of the pros and cons. As mentioned in the previous section, these are actively managed funds and don’t track a benchmark index. Besides, each fund could follow an entirely different strategy. As a result, there’s no common yardstick to compare performance. So it’s important to assess each bond fund’s benefits and disadvantages.

MarketWatch: – There’s no need to wait to buy bonds. – The bond market has been on a roll. bonds are strong, and they’re bullish. And as we’ve been saying for most of the year, they’re likely headed higher. We know that may seem strange, especially since interest rates are already so low. Nevertheless, it still looks like rates are going to fall further and as they do, bond prices will rise.

ETF Daily News: – Inside the new vident core U.S. bond strategy ETF. – The bond ETF space and the likely rise in short-term interest rates next year have become hot topics of discussion in the U.S. market. Investors are busy analyzing what type of duration and investment grade bonds should be the best pick at present especially given faltering global growth, strengthening of the U.S. economy, Fed outlook and Ebola concerns.

Morningstar: – Using passive funds to build a portfolio. – Portfolio managers use funds like building blocks – fitting together core holdings before adding smaller investments in more risky assets. Learn how you can do the same.


Bond Funds

ETF Trends: – First trust lowers fee, will reverse split short maturity ETF. – First Trust, the sixth-largest U.S. issuer of exchange traded funds, said it has approved an additional fee waiver for the recently launched First Trust Enhanced Short Maturity ETF (NasdaqGM: FTSM) and that the new ETF will be reverse split.

John Gerard Lewis: – How to solve your bond fund problem. – The Fed’s low-rate policy has left retirees gasping. Mutual funds, exchange-traded funds and closed-end funds, the diversified vehicles used by most investors to invest in bonds, are susceptible to declining values as interest rates rise. What to do? Invest in individual, investment-grade corporate bonds.

Bloomberg: – Legg Mason says bond ‘transition’ to set billions in play. – Legg Mason Inc. Chief Executive Officer Joseph Sullivan said a “transition” of assets is under way in the bond industry, after the departure of Bill Gross from Pacific Investment Management Co. prompted investors to set billions of dollars in motion.


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