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Carl Icahn: Junk Bond Market in a Bubble and Today’s Other Top Stories

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Billionaire activist investor Carl Icahn said he thinks the high-yield “junk” bond market is still in a bubble despite the asset class’s recent selloff.

Icahn speaking with Bloomberg Television anchor Stephanie Ruhle from the Robin Hood Investors Conference in New York on Tuesday said:

To see a list of high yielding CDs go here.

“I think the high-yield market is in a bubble,” Icahn told CNBC television. “We do a very arcane product, we buy the CDS (credit default swaps), the insurance, and we buy the CDS on the high-yield versus the Treasuries – the five-year Treasuries. It doesn’t mean I’m right; in fact I’m losing money on it right now. But I think that that is a no-brainer also.”

High-yield corporate bond spreads widened out to 5.08 percentage points over comparable U.S. Treasuries last week, up from a modest 3.35 percentage points as recently as June.

 

Todays Other Top Stories

Learn Bonds

Learn Bonds: – Bond bears fall further into hibernation. – So much for bonds being a lousy play in 2014. Investors in TLT have seen better than 20% total return this year, as Treasury rates have fallen to their lowest levels in about 18 months.

 

Municipal Bonds

WSJ: – World Trade Center tower rides a muni-bond revival. – After more than a year of uncertainty, a third tower at the World Trade Center site appears poised to rise thanks to an unlikely catalyst: a turnaround in the market for municipal bonds.

BondBuyer: – What do the midterm elections mean for munis? – (Subscription) Corporate tax reform is likely to be a priority for Congress and the Obama administration no matter which party has control of the Senate after the midterm elections, said tax experts and congressional observers who, nevertheless, differ on how this might impact municipal bonds.

 

Bond Market

LPL Financial: – Bond market perspectives. Stay on guard. – Although yields may stay pinned low for potential fallout from abroad, we still believe investors should stay on guard, with an emphasis on corporate sectors and a slight underweight to bonds.

 

Investment Grade

Wall St Daily: – Corporate bonds make good portfolio staples. – Good, quality corporate bonds are a reasonable compromise for at least part of our money. In fact, there are two reasons why corporate bonds make sense as part of an income portfolio.

Bloomberg: – Verizon said to plan four-part bond sale to refinance. – Verizon Communications Inc. (VZ) plans to sell a four-part, benchmark-size bond offering in the U.S. after investment-grade yields fell to the lowest in about a year.

Barron’s: – Why corporate bond yields could fall even further. – If the European Central Bank goes forward with its reported plan to buy corporate bonds, U.S. corporate bonds will probably benefit too. In the same way that absurdly low European sovereign debt yields make Treasury yields look spectacular by comparison, any large-scale buying of European corporates would drag their yields down further and make comparable U.S. bonds more attractive (even if the effect drags down U.S.  yields too).

 

High Yield Bonds

CNBC: – Has the junk bond bubble deflated? – After this month’s market gyrations sent high-yield bond prices sharply lower, some analysts believe the air has come out of the market.

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.

Barron’s: – Junk bonds rebound, but closed-end fund bargains remain. – Here today, gone tomorrow. Such is the reality for bargain-hunters in today’s low-yielding investment world, in which opportunistic investments appear quickly and then get snapped up just as fast. Last week’s sharp price swings across markets opened up a wide gulf between Treasury bond yields (which dropped) and junk-bond yields (which climbed). In a pretty short period, lots of investors stepped in and bought high-yield bonds.

Bond Vigilantes: – Ten reasons to like U.S. high yield today. – Global growth concerns, fears of a less accommodative Fed, and limited high yield market liquidity coupled with complacent and crowded investor positioning has served to reprice the U.S. high yield market over the past few months. The U.S. high yield market arguably now offers a significantly more attractive entry point. Whilst acknowledging that the market has moved faster over the past few days than I was able to write this blog, here are ten reasons why U.S. high yield could be considered a buy at these levels.

ETF Trends: – Junk bond ETFs look attractive after the bloodletting. – Investors are snatching up speculative-grade, high-yield bond exchange traded funds on the cheap after the sell-off pushed spreads over benchmark Treasuries close to historical averages.

 

Emerging Markets

Forbes: – Aberdeen client survey shows financial advisors more bullish on emerging markets than U.S. – Mike Riddell, the government bond tsar at M&G Investments, has warned of a potential crunch in emerging market local currency fixed income.

 

Green Bonds

The Guardian: – How do SolarCity’s new bonds stack up against other green investments? – The California solar company’s new bonds offer a green middle ground between CDs and stocks. But are they the best option for private investors?

 

Investment Strategy

ValueWalk: – Negative on government bonds as it expects “boring but better” growth to extend well into 2015. – Morgan Stanley sees recent growth fears as an opportunity to add exposure. In a Cross-Asset Strategy research note dated October 14 reviewed by ValueWalk, the brokerage firm said that growth remains intact in the U.S. and they are recommending investments in U.S. high yield instruments, select emerging markets and the long-end of U.S. investment grade credit instruments.

Matthew Sauer Esq: – Defensive ETF results. – Treasuries performed well in the recent sell-off, thanks to plunging bond yields. Traditional defensive sectors also performed well, with utilities lifted by lower yields. Low volatility ETFs such as SPLV and USMV turned in strong performances relative to the broader market.

About.com: – What happens to bonds in a stock bear market? – Bonds have a reputation as being a good way to diversify a portfolio that’s heavily invested in stocks, a trait that becomes especially apparent when stock prices fall quickly. However, the diversification benefits largely depend on the type of bonds you own.

Pragmatic Capitalism: – The core of the modern bond strategy: Go global. – “Keep Calm and Carry On” reads a popular World War II–era British motivational poster. We think the first half of the slogan is good advice for bond investors in today’s uncertain markets, but we’d substitute the second with “Go Global.”

Citywire Global: – Rates rise correction threat is being ignored, says €6.7bn star. – Now is the time to start making serious moves to protect against the Federal Reserve raising rates in the US and many investors are still ignorant of how big an impact this will have.

 

Bond Funds

Bloomberg: – SEC Rejects Non-Transparent ETFs in Setback for Industry. – The U.S. Securities and Exchange Commission rejected plans by BlackRock Inc. and Precidian Investments to open a new type of exchange-traded fund that wouldn’t disclose holdings daily, setting back efforts by money managers to bring more actively managed ETFs to market.

Bloomberg: – Slap exit fees on bond funds in IMF pitch to safeguard market. – Investment firms made it easy for individuals to plow into infrequently-traded debt in good times. Perhaps they should make it tougher to exit in downturns.

 

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