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Buy Treasuries to Ride Out Storm and Today’s Other Top Stories

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October 1st is just around the corner and as we speak there is no mechanism in place for funding the government in the next fiscal year. Whilst the House GOP has passed a law that continues government funding through the end of December— it is wholly dependent on the Senate and President Obama agreeing to defund implementation of the Affordable Care Act.

With such clouds on the horizon you might not think that U.S. Treasury bonds wouldn’t make a particularly good investment. But Daniel Gross thinks now is good time to be loading up on U.S. Treasuries.

“Government shutdowns, fiscal restraint, and manufactured crises are generally bad news for stocks and good news for bonds.”

What’s more if Obama agrees to more budget cuts as a condition for increasing the debt limit, the American economy would slow. That’s bad for a particular group of stocks that rely on government contracts, but good news for Treasuries.

“So, as D.C. enters a period of fiscal and financial chaos, the smart money will be rushing to purchase financial obligations backed by nothing more than the promise of the U.S. political system to pay.” Daniel Gross.

 

Todays Other Top Stories

 

Municipal Bonds

Zacks: – 5 Highest yielding Zacks #1 Ranked municipal bond mutual funds. – Here we will share with you the 5 highest yielding Zacks #1 ranked municipal 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.

Bond Buyer: – Puerto Rico and Detroit: Investors tread fine line between value and concern. – In a choice between a rock and a hard place, investors favor Puerto Rico over Detroit.

Income Investing: – As muni bond fund outflows continue, Citi likes Puerto Rico. – Municipal bond fund flows were considerably less negative for the week that ended September 18. Citibank notes that municipal bond funds have seen outflows of $40.25 billion so far this year, and assets under management are down $70.6 billion, or 11.75%, since the start of the year. However, for the latest week, Citi notes that the net outflows relative to the prior week were striking in long-term and high-yield funds.

MarketWatch: – Municipal bond market shows signs of stabilizing. – The perfect storm that conspired to weaken the municipal bond market during the last few months may be starting to clear — at least for now.

JSOnline: – Municipal bonds, emerging markets present investment opportunities. – Despite new highs and a commonly held view that stock and bond markets are too expensive, a Milwaukee money manager says there are reasonable places to invest.

DealBook: – Detroit’s casino-tax dollars become big issue in bankruptcy case. – Detroit had a bit of rare good fortune as it hurtled toward bankruptcy last summer — a couple of banks were willing to let it out of some expensive financial contracts, called interest-rate swaps, without paying in full the usual steep termination fees. But since then, an insurance company has been seeking to block the deal, lining up allies among Detroit’s other creditors.

Bloomberg: – Munis extend biggest rally in 20 months from Fed as supply drops. – The U.S. municipal market is heading for its biggest monthly rally since January 2012 as dwindling supply helps extend gains following the Federal Reserve’s decision to continue the pace of its bond buying.

 

Education

Learn Bonds: – The role stocks play in an income investor’s portfolio. – Part 2 of Financial Lexicon’s introduction to income investing. This article focuses on diversifying your portfolio by purchasing securities across a variety of asset classes and asset class categories.

 

Treasury Bonds

WebProNews: – Bonds continue to rise, making investment wise. – Buying Treasury bonds today is as sure of a bet as putting some money on Barry Bonds was back in 2001.

WSJ: – Treasury bonds gain for third-straight day. – Prices of U.S. Treasury bonds rose for a third-consecutive session, a sign worries over rising interest rates continue to ease.

 

Corporate Bonds

ValueWalk: – Two methods/rules for analyzing corporate debt. – There are two distinctly different ways to analyze corporate bonds. The first way is the old standard, which relies on fundamental analysis of a company’s financial statements. The second way relies on contingent claims theory (options theory, Merton’s model) and relies primarily on market-oriented variables, such as stock prices and option volatility.

Fox43: – GM’s debt is no longer junk; now investment bonds. – General Motors reached an important milepost in its recovery from bankruptcy and bailout Monday when its debt was upgraded out of junk bond status for the first time in more than eight years.

 

High-Yield

Reuters: – Ten U.S. high yield issuers storm the market. –  Ten high-yield issuers announced new deals on Monday in a rush to grab an unexpected longer window to print bonds before the Federal Reserve finally starts to reduce its bond buying program.

Business Recorder: – Opportunistic borrowers charge into US high yield. – Opportunistic borrowers leapt into the US high-yield bond market on Monday, with 11 new deals announced and three benchmark issues totaling $2.4bn pricing by the close of play.

 

Convertible Bonds

News Tribune: – Convertibles give investors best of bond and stock worlds. – Investors can’t decide which scares them more right now, a bond market poised for massive changes as interest rates keep rising, or a stock market that has reached record highs despite a weak economy. For investors who aren’t completely happy with either side of the stocks/bonds picture, convertible securities offer an interesting straddle.

 

Bond Funds

FT: – Bond barons emerge winners in Fed move. – To a man, Wall Street’s best strategists were caught out by the Federal Reserve’s decision not to curb its emergency asset-buying. Now investors want to know who has lost money, who has made it and, indeed, where it can be made in coming weeks.

IndexUniverse: – iShares To Launch Short-Duration Bond ETF. – iShares, the largest ETF provider in the world, with more than $580 billion in assets, is expected to roll out this week an actively managed short-duration bond ETF that would compete in a hot segment of the market anchored by funds like Pimco’s Enhanced Short Maturity Strategy fund (MINT) | A).

Investment News: – Gundlach to oversee $450M in annuities push. – The manager of the top-performing DoubleLine Total Return Bond Fund, is expanding to variable annuities by sub advising a fund modeled after his flagship.

MoneyWatch: – Active bond funds won’t protect you in bear market. – One of the arguments offered up in favor of active fund management is that while passive investors have to live with inevitable bear markets, active managers can protect you from them. That’s certainly a possibility. And it does seems like an advantage to be able to move from stocks to cash during, or in anticipation of, bear markets in stocks and to move to short-term bonds or cash in bear markets in bonds. The question: Does the advantage show up in returns?

Fox Business: – Reducing tax liability of mutual funds. – When it comes to mutual fund investing, it’s not what you earn that matters as much as what you manage to keep. Indeed, the net return on your portfolio can be hugely impacted by how much you surrender each year to Uncle Sam.

Trading Floor: – Above the noise: Equities long-term beats bonds by a distance. – Today, the relative upside in equities over bonds is 57 percent when using the historical equity risk premium of 4.2 percent. The gap to the equity-risk premium line will likely be closed in two ways. Either both equities and bonds appreciate with the former appreciating faster over the coming years, or bonds fall as interest rates normalise while equities continue to appreciate. Either way, every investors should be overweight equities compared to bonds. Nothing else makes sense. Or does it?

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