The Federal Reserve was left divided after it pored over data on inflation, financial market volatility and anaemic global growth last month, leaving it with a muddled picture of what it means for the U.S. economy.
The Fed’s statement after its Oct. 28-29 gathering largely shrugged off a mid-October market meltdown and ebbing growth in other developed economies, with the central bank restating confidence that the U.S. economy would continue to make progress.
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But the minutes of the meeting released on Wednesday reflected a complex discussion at the U.S. central bank. Staff cut their estimates for near-term U.S. economic growth, and Fed policymakers wrestled with the pros and cons of acknowledging market turbulence and overseas developments in their statement.
A solid core of officials said the Fed needed to remain vigilant that public and market expectations about inflation could shift down – a worrisome development that might increase the risk of a damaging period of stagnation or outright declines in wages and prices. The soft pace of inflation has become a central concern at the Fed and other major central banks.
“Many participants observed that the committee should remain attentive to evidence of a possible down shift in longer-term inflation expectations,” the minutes said. “Some of them noted that if such an outcome occurred, it would be even more worrisome if growth faltered.”
Todays Other Top Stories
Learn Bonds: – The top five stocks for bond investors. – Predictable cash flow is one of the many positive attributes of investing in bonds. While common stocks should never be considered an apples-to-apples substitute for fixed-income, there are certain kinds of companies that possess bond-like attributes. Business models with strong recurring revenues or contractual obligations can be ideal choices for investors looking for strong dividend durability.
Reuters: – Soaring high-yield muni funds could fall in 2015: Eaton Vance. – High-yield U.S. municipal bond funds, which saw runaway returns for most of this year, could spiral downward in 2015 if investors become spooked anew by negative headlines out of Puerto Rico, a senior portfolio advisor at Eaton Vance said on Tuesday.
Physician’s Money Digest: – 4 Reasons to avoid individual municipal bonds. – I occasionally run into investors and advisors who advocate using individual municipal bonds rather than a good municipal bond mutual fund. In this column, I will discuss 4 reasons why this may not be a good idea for you.
Business Standard: – Improved municipal bonds important for core sector. – Improved municipal bonds and infrastructure debt funds would pave the way for infrastructure development and management. This was the consensus view of experts at a seminar held here Wednesday.
Bloomberg: – U.S. Has record inflow of portfolio investments in September. – The U.S. posted a record inflow of long-term portfolio investments in September as the dollar strengthened and foreign buyers accumulated corporate debt, Treasuries and agency securities.
ValueWalk: – Should we scrap Treasury bonds for Treasury perpetuities? – University of Chicago professor John Cochrane argues that we should restructure US federal debt as a perpetuities to eliminate the unnecessary friction of rolling over debt.
Market Realist: – Why Treasury yield updates are important for investors. – It’s important that investors are updated on Treasury yield movements. Treasury yields are used as benchmarks to determine the required returns on other assets including—stocks, corporate debt, and real estate, among others. They also affect the financing decisions for firms and individuals because they impact borrowing costs.
Bloomberg: – J&J sells $2 billion of bonds as investors chase AAA debt. – Johnson & Johnson sold $2 billion of bonds today, increasing the size of its sale as one of the top-rated U.S. issuers took advantage of interest in high-grade securities.
High Yield Bonds
Investing.com: – Is the bubble about to burst? Check out junk bonds. – One of the surest signs that a bubble is about to burst are junk bonds behaving like respectable paper. That is, their yields drop to mid-single digits, they start appearing with liberal loan covenants that display a high degree of trust in the issuer, and they start reporting really low default rates that lead the gullible to view them as “safe”. So everyone from pension funds to retirees start loading up in the expectation of banking an extra few points of yield with minimal risk.
Bloomberg: – Towergate’s junk bonds plunge to record amid earnings slump. – Towergate Finance Plc’s high-yield bonds plunged to a record after Europe’s largest insurance broker reported a slump in earnings.
NY Times: – Junk bonds flourish amid low interest rates, but so do default worries. – A big wave of defaults in the junk bond market may be on the way. But some say there may be no reason for investors in the sector to worry.
Pension Partners: – Are junk bonds sending a warning signal? – Over the past month, we have seen a rip-roaring, v-shaped rally to new all-time highs in the large-cap U.S. equity indices. At the same time, volatility has been crushed in a move lower in the VIX Index that we have never seen before (above 30 to below 15 in the span of 2 weeks). The combination of these two factors has left individual investors feeling extremely optimistic about the future prospect for equities. There’s nothing investors love more than a straight up move with low volatility.
ValueWalk: – Examining the divergence between equities and credit. – There has recently been a marked divergence between U.S. equity and high-yield bonds. Given the historically strong correlation between these two markets, we believe that high-yield credit may represent an attractive opportunity for investors seeking to benefit from stronger U.S. growth.
Bloomberg: – Junk-bond banking boom peaks as firms drop off deal list. – The explosion of brokers plowing into the lucrative junk-bond underwriting business may be fading.
Reuters: – Fridson sees higher junk bond yields on rising defaults. – Martin Fridson, chief investment officer of wealth management firm Lehmann Livian Fridson Advisors, said Wednesday that high-yield bonds will see some selling pressure in 2015 before selling off more dramatically in subsequent years.
Bloomberg: – Why emerging markets ETFs don’t work. – Emerging markets ETFs, the strategy that doesn’t really deliver results. I’m going to make a blunt statement, which is always risky. But hear me out, because what I have to say has direct effects on your financial success.
MarketWatch: – Global X funds introduces China onshore bond ETF. – Global X Funds, the New York-based provider of exchange-traded funds (ETFs), today launched the Global X GF China Bond ETF (nyse arca:CHNB), which tracks the S&P China Composite Select Bond Index. The fund offers direct access to China’s onshore bond market. Global X brings the fund to market in partnership with GF International Investment Management Limited, one of the leading fund managers in China, who is also serving as the fund’s sub-advisor.
Reuters: – Investors see Latam opportunities in 2015 but Brazil a ‘wildcard’. – Several high-profile U.S. investors said on Tuesday that various parts of Latin America could outperform in the next year, but the region’s largest economy, Brazil, could lag in 2015.
Bloomberg: – Bond haul surges to record $11 billion with sale. – Mexico’s first sale of dollar-denominated bonds since January is helping the nation lock in overseas financing as speculation grows that benchmark borrowing costs will rise next year.
Gross: Tag Team Central Banks … The Fed gets tired, BOJ/ECB take over. But money printing is not wealth.
— Janus Capital (@JanusCapital) November 19, 2014
Ultra bond spread prints 11’s (FV looked like 12 the other day) Beware yield spreads in the land of the Big $01’s Bro! — InterestArb (@InterestArb) November 19, 2014
Standard and Poor’s came out very negative on the current asset purchase programs, which is buying asset backed securities & covered bonds.
— Bob Pisani (@BobPisani) November 19, 2014
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