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The U.S. Federal Reserve renewed its pledge to keep interest rates near zero for a “considerable time” on Wednesday, but issued projections that suggested it may raise borrowing costs a bit quicker than it had been thinking a few months ago.
This is inline with what many economists and traders had been expecting, given the generally improving data on the economy’s performance.To see a list of high yielding CDs go here.
Additionally, the Fed released latest Summary of Economic Projections, which included GDP and inflation projections from FOMC members, as well as the famous dot plot.
The dot plot is a chart that shows where FOMC members think the Fed’s benchmark interest rate will be at the end of upcoming years and over the long term.
Following the announcement, the dollar hit its highest level against the Japanese yen since September 2008. While yields on U.S. Treasuries rose as traders moved to price in the possibility of higher future rates.
Todays Other Top Stories
LearnBonds: – In search of bond alternatives. – Last week I discussed the similarities between triple net real estate investment trusts (REITs) and bonds. While I think bond investors looking for predictable cash flows can certainly look at equities to complement fixed income holdings, it’s probably not appropriate to view them as substitutes. There is inherently more capital risk in owning stocks.
MoneyNews: – Detroit authority approves $450 million muni bond deal for arena. – A $450 million bond sale to finance a Detroit hockey arena neared final approval with consent of the city taxing authority that will help pay for it.
Bond Buyer: – Schumer letter asks regulators to detail plans to include munis as HQLAs. – (Subscription required) A federal banking rule that doesn’t classify municipal bonds as high-quality liquid assets needs to be reworked to ensure it won’t impede critical infrastructure development, Sen. Chuck Schumer told regulators on Tuesday.
ETF Trends: – Muni Nation: Hot fun in the summer. – With definitive action on the part of the Federal Reserve potentially months away, the municipal bond asset class continues to enjoy investor attention and asset inflows.
Bloomberg: – Puerto Rico wins with worst riskless return. – Debt of junk-rated Puerto Rico is beating the entire $3.7 trillion municipal-bond market in 2014 and all U.S. states. Take volatility into account and the securities come in dead last.
About.com: – How to protect your assets in a bond bear market. – A bond bear market is by no means a sure thing. Still, two outcomes are highly likely from here: bonds are unlikely to deliver returns in the next ten years that they did in the past ten, and volatility will increase significantly. To that end, here is a defense kit to help you weather a downturn, with history and background, investment ideas, and thoughts on the bond market segments best avoided.
Wall St & Technology: – Startup brings pandora-like data intelligence to bond voice trading. – Algomi is helping sales traders find the other side of less liquid bond trades, so that banks can become more efficient at voice trading.
Reuters: – Bond traders see more turbulence ahead for U.S. interest rates. – Rising volatility in U.S. interest rates is seen in coming months as traders expect the Federal Reserve to move away from its near-zero interest rate policy held for the past six years.
PIMCO: – PIMCO Cyclical Outlook: Policy dissonance and geopolitical risk beget economic decoupling. – The U.S. economic policy mix in the post-crisis era has been far from perfect. But, when compared and contrasted with policies enacted in other countries over the same period, the relative lack of policy dissonance in the U.S. clearly stands out, giving birth to our forecast of superior cyclical U.S. economic performance versus the rest of the world.
Bloomberg: – Treasuries advance as consumer prices drop before Fed. – Treasuries advanced after a reports showed the cost of living in the U.S. unexpectedly dropped in August as the Federal Reserve decides on the future path of interest rates in a policy meeting today.
Reuters: – Foreigners snub long-term U.S. assets for second month in July. – Foreigners sold long-term U.S. securities in July for a second straight month, led by outflows in Treasuries, stocks, and corporate bonds, data from the U.S. Treasury Department showed on Tuesday.
High Yield Bonds
IFR Asia: – Burger King readies bond financing for Tim Hortons buy. – US fast-food chain Burger King will this week begin marketing a much-awaited US$2.25bn high-yield bond to help finance its US$11.5bn acquisition of Canadian doughnut group Tim Hortons.
Financial Markets Maverick: – When junk becomes junk. – The high yield corporate bond market more commonly known as the junk bond market, just like the equity market, with which it is correlated, has been under the control of the bulls for the last number of years. Strange that an asset called Junk, a true “risk on” asset class has been pumped to be dumped mainly by the Federal Reserve’s meddling in the markets.
FT: – Junk bond issuers lock in low costs. – (Subscription required) Sales of junk bonds in the US have ballooned this month after a sharp drop in August, as companies with weak credit ratings try to raise as much funding as possible before Wednesday’s Federal Reserve meeting and the prospect of higher interest rates.
Advisor Shares: – High yield in a rising rate environment: A perspective on historical performance. – Higher coupons and yields in the high yield space help cushion the impact of rising interest rates. High yield bonds are negatively correlated with Treasuries. Since 1980, Treasury yields have increased (i.e., interest rates rose) in 15 of those years.
Citywire: – Sanctions threat leads EMD star to cut emerging Europe bets. – Threadneedle’s Zara Kazaryan has reduced her exposure to emerging Europe bonds, as she believes the region will continue to be negatively affected by sanctions against Russia.
WSJ: – Fed dims emerging markets’ allure. – (Subscription required) Fears of higher U.S. interest rates are prompting fund managers to cut back on investments in emerging markets.
FT: – Funds and ETFs magnify EM volatility. – (Subscription required) Emerging equity markets are taking another lurch. The reasons are well rehearsed: angst about the future actions of the Federal Reserve occasionally prompts western investors to pull back their money in a hurry.
Citywire: – Going for gold in global bonds: three managers to watch. – (Registration required) Citywire Global uncovers the fixed income specialists posting ratings-worthy performances in the global bonds sector this month.
Bloomberg: – Bill Gross used $45 billion derivatives to lift fund gain. – Bill Gross is relying on derivatives rather than Janet Yellen to raise his returns on government bonds.
Gross: Is inflation or disinflation the US threat? The Fed’s inflation expectation indicator has dropped from 2.6 to 2.37 in 30 days.
— PIMCO (@PIMCO) September 17, 2014
Bond bulls talking about language and unlikely to change. Bond bears looking for the dots to increase and more vocal dissent
— Peter Tchir (@TFMkts) September 17, 2014
Bonds react negatively to greater implied pace of rate hikes but not a big move.
— AnthonyValeri (@Anthony_Valeri) September 17, 2014