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Concerns over the pace of growth in Europe sent investors rushing to the safety of U.S. government bonds Tuesday, sending the yield on the benchmark 10-year note to its lowest level in 16 months.
Data on the eurozone’s industrial production in August, showed a bigger-than-expected decline, while an index of economic sentiment in Germany turned negative this month for the first time since late 2012. Adding to investors’ anxiety about the region’s struggling economy, the U.K. reported that inflation in September slowed to the lowest level since 2009.
To see a list of high yielding CDs go here.
The U.S. 10-year yield touched 2.173%, the lowest intraday level since June 2013. German and U.K. government bonds markets also rallied sharply. The yield on the 10-year German bund fell to a new record low of 0.838%. The yield on the 10-year U.K. government bond dropped to 2.072%, the lowest in more than a year. Yields fall as prices rise.
Tuesday’s rally in ultrasafe government debt extends 2014’s surprising gains in the bond market. At the start of the year, many investors had expected that Treasury prices would decline, pushing yields higher, as the U.S. economy strengthened and the Federal Reserve prepared to remove accommodative monetary policies that had been in place since the financial crisis.
Todays Other Top Stories
Learn Bonds: – A global economy with a split personality. – It was not supposed to be like this. 2014 was supposed to be the year when the U.S. economy reached escape velocity, the Eurozone was expected to throw off the shackles of a sovereign debt crisis on the periphery, China was supposed to fulfill its destiny and South America was expected to rival its neighbors to the north. Still some of the U.S. economic data has been encouraging. The best way we can describe economic conditions is, bipolar.
Mutual Fund Observer: – Municipal bond market risk: Liquidity. – Reduced municipal-market liquidity has forced managers to operate in a less benign environment, since the implementation of the Dodd-Frank Act and the exclusion of municipal bonds from the approved list of high-quality liquid assets (HQLAs), according to Nick Venditti.
Businessweek: – The short-term thinking behind America’s infrastructure crisis. – Last week, Larry Summers repeated his plea for the U.S. to invest more in its crumbling infrastructure. Investing in infrastructure may seem like a no-brainer, but financing it is more complicated. Most infrastructure projects are chosen and paid for at the state and local level.
Bloomberg: – Pimco sees returns ebbing after best gain since ’11: Muni credit. – With the $3.7 trillion municipal market poised for its biggest annual gain since 2011, this year is going to be a tough act to beat, say Pacific Investment Management Co. and Morgan Stanley.
Business Insider: – Market correction last week…did you see the opportunity? – While stocks fell around the world last week amid growing concerns over global economic growth, Europe’s slowdown can’t stop emerging market population growth that drives long-term commodity demand. If the short-term market volatility concerns you, a solution is short-term tax-free municipal bonds.
Income Investing: – Stocks plunge, but bonds are not around to rally. – Stocks are doing another late-day pratfall but bonds, which would ordinarily be the beneficiaries, aren’t around to post any gains. That’s because Columbus Day is a holiday for the bond market (after today, stock markets ought to consider taking the day off too). So it’s the bond futures market and bond exchange-traded funds that must stand in as proxies today. Bond futures have been chugging along all day, picking up where last week’s bond-market rally left off.
Bloomberg: – U.S. stocks gain as bond yield drops below 3%; oil slips. – U.S. stocks rose, led by a rally in small-caps, on speculation the worst three-day selloff since 2011 was overdone. Oil extended a rout and 30-year Treasury yields fell below 3 percent for the first time since 2013.
DoctoRX: – Additional bullish portents for Treasuries. – Enough news has occurred in less than a week to document it in another article on Treasuries. To me, this news provides accelerating positive arguments for lower Treasury rates, though this is not a day-to-day timing call. All this is consistent with the Taper following the pattern set at the end of QE 1 and QE 2.
Morningstar: – Heightened volatility results in sloppy corporate bond trading. – While marriages are increasing in the health-care sector, conscious uncoupling increases in the technology sector.
High Yield Bonds
Hawkinvest: – Junk bond CEFs could be poised for a pullback. – Junk bonds are in the midst of a pullback. The market is in a period of high volatility, and less liquid investments like closed-end funds could pose higher risks at this time. Investors should consider their exposure to less liquid investments, and perhaps even sell CEFs that trade at a premium to net asset value in order to reduce risks.
Trading Floor: – Is it too late to jump on the ‘bond wagon’? – With equities taking a hammering in European markets and as Eurozone woes multiply, investors are as ever being urged to diversify. Is it too late to jump on the ‘Bond Wagon’? Simon Fasdal, Head of Fixed Income Trading at Saxo Bank looks into the opportunities available, especially in Emerging Markets where sure there’s risk but it’s perhaps clearer to assess than in Europe and the US.
Reuters: – Green bond boom at risk without rules: Zurich Insurance. – The integrity of the fast-growing “green bond” market is at risk unless a clear definition of what passes for green can be agreed, Zurich Insurance’s investment chief told the Reuters Global Climate Change Summit.
Scott’s Investments: – Dual momentum ETF portfolio for October. – Scott’s Investments provides a free “Dual ETF Momentum” spreadsheet which was originally created in February 2013. The strategy was inspired by a paper written by Gary Antonacci and available on Optimal Momentum.
ETF.com: – Avoid bonds when playing strong dollar. – How does an investor approach this new era of a stronger dollar relative to most global currencies?
Reuters: – Fund managers most bearish on growth, stocks for two years: survey. – Global fund managers are their most gloomy on the outlook for global growth and stock markets in two years as they adjust to a world of diminishing central bank stimulus, a survey showed on Tuesday.
ValueWalk: – The ultimate income portfolio: 7.1% yield with low risk. – The goal of this income portfolio is to provide the maximum available yield while diversifying to reduce risk. It has a set target risk, which is within the range that most individual investors seek.
Reuters: – Record assets in global bond ETFs as managed funds’ appeal fades. – Assets managed by global bond exchange-traded funds have hit an all-time high of $441 billion (274.72 billion pounds), while money flows out of actively-managed hedge funds, financial information provider Markit said on Tuesday.
FT: – Wall St sheds light on Bill Gross reign after Pimco departure. – During the multi-decade bull market for bonds, Pimco established itself as an investor powerhouse in fixed income and one whose business was coveted by Wall Street. Now, as Pimco seeks to reassure investors and battles huge client outflows following the departure of Bill Gross to Janus Capital, Wall Street professionals paint a picture of a firm that exulted in its size and power and was not shy about throwing around its weight.
FT: – Big bond fund outflows are risk for banks. – The International Monetary Fund’s Global Financial Stability Report is not a document to which people turn naturally for a cheery post-crisis view of where markets are going. Predictably enough, the latest report calls for increased vigilance. Yet a determined optimist might argue that it is in one important respect rather positive.
Markit: – Bond ETFs in a post-Gross world. –Assets managed by global bond ETFs stand at an all-time high of $441bn. Record highs in AUM are led by strong inflows across the world. PIMCO’s Total Return Bond ETF has led outflows out of actively managed bond funds.
— Mohamed A. El-Erian (@elerianm) October 14, 2014
higher rates are not a problem for investors and should be welcomed with open arms…close your arms folks it ain’t happening deflation here
— Michael Pietronico (@MillerTabak) October 14, 2014
#Municipal bond trading very active this AM with tax-exempts generally keeping up with the Treasury rally. Bodes well for issuers this week
— Muni Market Advisors (@Muni_Mkt_Advis) October 14, 2014