China Data Boosts Treasuries and Today’s Other Top Stories

10 year treasury

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U.S. Treasury bonds were boosted on Monday, for the first time in six days, following the release of disappointing industrial data from China over the weekend. The weak data added to concerns over uneven global economic growth, boosting demand for safe haven assets.

The showed that China’s industrial output growth expanded last month at its lowest level since the 2008 global financial crisis.

The news caused U.S. Treasury bonds to strengthen, bringing to an end the biggest weekly selloff in a year amid jitters over the Federal Reserve’s interest-rate outlook.

In recent trading, the benchmark 10-year note was 7/32 higher, yielding 2.589%, according to Tradeweb. Yields fall as prices rise.

“The market is taking a pause,” Anthony Cronin, a Treasury bond trader at Société Générale SA GLE.FR -0.86% told the WSJ. “There was some weaker news on China’s economy overnight that helped stall the selling.”

After soaring in August to fresh highs of the year, bond prices have tumbled this month.

The 10-year yield jumped by 0.15 percentage points last week, the most on a weekly basis since September 2013. Earlier Monday, the yield touched 2.621%, the highest intraday level since July 8.

All eyes are now on this weeks Federal Open Market Committee meeting scheduled to start on Tuesday. Where the FOMC is due to issue an interest-rate statement, followed by a news conference from Fed Chairwoman Janet Yellen.

This months statement carries more weight than usual as Fed officials debate about the timing to raise short-term interest rates, which have been held near zero since December 2008.


Todays Other Top Stories

Learn Bonds

LearnBonds: – Bank of America’s newest preferred stock yields 6.625%. – When deciding whether to purchase BofA Series W preferred bonds at their recent level of $24.84 (yield of 6.67%), I think the following two things should be near the top of one’s thought process.


Municipal Bonds

Bloomberg: – Puerto Rico said to plan $900 million note offer in 30 days. – Puerto Rico plans to sell $900 million of tax- and revenue-anticipation notes within 30 days, according to a person with knowledge of the sale, marking its first foray into the municipal-debt market since March.

WSJ: – Detroit rattles municipal-bond market. (Subscription required) A fight over plans to replace bankrupt Detroit’s sewer bonds raises concerns over “safe” investments and threatens to reshape the nation’s $3.7 trillion municipal-bond market. Mike Cherney reports on MoneyBeat.

Bloomberg: – Scranton stalked by bankruptcy mulls selling sewers. – Scranton, with the weakest pension plan among Pennsylvania’s cities, is trying to prop up its retirement funds to avoid becoming the first U.S. municipality since Detroit to file for bankruptcy.

Bloomberg: – Texas windstorm insurer to offer $500 million. – Texas Windstorm Insurance Association this week is offering $500 million in unrated municipal debt as the Austin-based group girds for the hurricane season through November.


Bond Market

Bloomberg: – Pimco says no Canada bear bond market as Poloz tightens. – Canadian bond investors will avoid a bear market with the central bank likely to raise interest rates at a gradual pace as the economy strengthens, according to Pacific Investment Management Co.

Reuters: – Wall St week ahead Fed change unlikely to blunt equities’ appeal over bonds. – The recent wobbly stretch in both stocks and bonds may persist for the short term if the U.S. Federal Reserve next week lives up to expectations and signals the days of near-zero interest rates are numbered, but it is unlikely to tip valuation scales in favor of bonds any time soon.

Bloomberg: – Treasury to push for clarity in mortgage-bond ratings. – The U.S. Treasury is seeking to stoke issuance in the mortgage-bond market by pushing credit-rating firms to offer more information on how they might grade securities tied to riskier loans.


Treasury Bonds

Bloomberg: – ETF Investors snap up long-term Treasuries on Fed inflation view. – Longer-term Treasuries, posting the strongest returns since 2011, are luring investors in exchange-traded funds at the expense of shorter-term debt on speculation the Federal Reserve will tighten monetary policy and hold inflation in check.

ETF Trends: – The race to Treasury ETFs. – Despite all the chatter about when the Federal Reserve will finally race interest rates, investors are living in the moment as a 12.4% year-to-date decline in 10-year Treasury yields has stoked massive inflows to Treasury exchange traded funds.

Reuters: – Prices up after sell-off on signs of softer growth. – U.S. Treasury debt prices rose on Monday on bargain hunting encouraged by fresh signs of spotty economic growth, which might slow the Federal Reserve’s shift away from loose monetary polices.


Investment Grade Bonds

Bloomberg: – Look out for Volcker in illiquid market already feeling squeezed. – The difficulties that traders are having maneuvering in the $10 trillion U.S. corporate-bond market may be poised to get worse.

Donald van Deventer: – Comparing the marginal cost of funds for Berkshire Hathaway, Wells Fargo and Bank Of America. – Today, we show that Berkshire Hathaway has a marginal cost of funding below both banks. With tongue partly in cheek, both banks could reduce their marginal funding costs by giving up the implicit TBTF USA guarantee for an explicit Berkshire Hathaway guarantee.

WSJ:  – U.S. Government bonds drop on Fed jitters. (Subscription required) Treasuries bonds slid on Friday, capping a two-week selloff on concerns the Federal Reserve could send stronger signals about higher interest rates at the central bank’s meeting next week.

Morningstar: – Heavy new issue volume pressures corporate bond market. – While credit spreads held in fairly well two weeks ago despite the record-breaking amount of weekly new issue volume, they were unable to hold their ground last week. New issue volume slowed from its torrid pace the prior week, but among the issuers we rate, still another healthy $24 billion worth of volume was priced last week.


High Yield Bonds

David Stockman: – Wall Street at work aggravating risk—would you like some leverage on them junk bonds? – Once upon a time junk bonds yielded 12-15% on a regular basis and not without reason. After accounting for average losses of about 5% on a long term basis—plus inflation, taxes, illiquidity and real returns—-double-digit yields made good sense financially. How times have changed.

Income Investing: – Junk bonds stumble again; Posing a risk to stocks? – The bond market is having some serious problems this week as it awaits next week’s Federal Reserve policy committee meeting, where the Fed is expected to tweak some of its policy language regarding its plans for an eventual interest-rate hike. Treasury yields have been rising all week, and high yield bonds, which already suffered one acute selloff in late July, are having another right now.

Reuters: – U.S. high-yield borrowers pressed to announce new deals. – “Now or never” is the message from debt capital market bankers to junk-rated corporates, which are being pressured to bring bond deals now – even as the US high-yield market grapples with some US$22bn in new issues since Labor Day.

Wells Fargo Blog: – Is the U.S. now a high-yield country? – A near-recession, the threat of deflation, and the European Central Bank’s (ECB’s) efforts to combat these issues have pulled yields in the eurozone lower than those of U.S. Treasuries.


Emerging Markets

Financial Post: – Emerging markets may evade Fed rate rout. – Just as vaccines work by stimulating the body’s immune system, last year’s selloff may have helped emerging markets build defenses against the damage they have suffered during past U.S. rate rise cycles.

Bloomberg: – Putin sanctions bite again as debt-raising plans obscured. – Fresh European Union and U.S. sanctions and the threat of Russian retaliation are impeding the Finance Ministry’s plan to sell more ruble bonds by the end of 2014 than it did in the first eight months of the year.

WSJ: – BIS Warns on latest emerging markets cycle. – Emerging markets are notoriously cyclical anyway. But there are reasons to be particularly worried about what happens when the latest cycle turns, according to analysis in the Bank for International Settlements’ latest quarterly report.

MoneyBeat: – Dollar worries for emerging markets. – What happens when you get a solidly growing U.S. economy set against the backdrop of weakness across much of the rest of the world?


Catastrophe Bonds

WSJ: – Reinsurers lose twice in low-yield world. – Success for esoteric deals is a sure sign there is too much money in a market. So a tightly priced bond that helps insure a German lottery company against too many winners is worrying for the world of catastrophe coverage.


Investment Strategy

Potrero View: – Investors should be wary of long-term bonds. – It’s a bad time to own or buy bonds, such as fixed coupon bonds with mid- to long-term maturities, which include the most common type of bonds, U.S. Government Treasuries. Why should bonds be avoided? Mainly because there’s a high probability interest rates will rise over the next couple of years.

MarketWatch: – Bond fund investors should lower duration. – If the decline in bonds last summer put a serious dent in your portfolio, it’s time to circle the wagons so that future interest rate leaps won’t leave you scrambling to make changes at the most inopportune time.


Bond Funds

Investing.com: – Will 2014 be the tipping point for active ETFs? – The pace of new actively managed ETFs being released to the market has continued to heat up this year.  Of the 106 total ETFs that are designated as active by the SEC, 35 have been released this year and many more are planned in the near future.

USA Today: – Why fund managers are sad you’re not on vacation. – Most mutual funds are failing to keep up with broad market indexes again. It’s a trend that’s gone on for years, and the most recent struggles for portfolio managers may be due to their preference for companies that sell coffee, make travel reservations and otherwise focus on non-essentials for consumers. These stocks have had some of the year’s weakest performances.

Reuters: – SEBI issues clarifications on mutual fund exposure to bond futures. – Mutual fund houses are subject to trading member level position limits on investments in government bond futures, the capital markets regulator said in a circular issued on Monday.


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