Federal Reserve Pledges Patience on Rates and Today’s Other Top Stories

Federal Reserve - Interest Rates

The Federal Reserve made a change to its language about the timing of rate increases on Tuesday. Saying it will be “patient” on the timing of the first interest-rate rate increase.

In the release of this months Federal Open Market Committee statement, the Fed used the word “patient” in place of “considerable time” in its pledge to keep borrowing costs near zero.

“The committee judges that it can be patient in beginning to normalize the stance of monetary policy,” removing a calendar-based phrase with language that gives it more flexibility to respond to economic data. “The committee sees this guidance as consistent with its previous statement that” rates are likely to stay near zero for a “considerable time.”

The Fed also raised its assessment of the labor market saying that the labor market “improved further,” while the “underutilization of labor resources continues to diminish,” dropping the word “gradually” used in its previous statement.

The change in guidance is another step in the Fed’s plan to exit from the loosest monetary policy in its 100-year history. While a faster-than-expected drop in unemployment is pushing the central bank toward raising rates next year, plunging prices of oil and commodities are holding inflation below its target.

“The committee continues to monitor inflation developments closely,” the FOMC said. It expects inflation to “rise gradually toward 2 percent.”

Today’s statement didn’t mention global market turmoil sparked by oil and the Russian currency crisis.

Quarterly forecasts released by the Fed today show officials see interest rates rising more slowly over the next two years compared with their September estimates. They also see the economy reaching full employment later next year, while inflation remains below their target at 1 percent to 1.6 percent.


Todays Other Top Stories

Learn Bonds

Learn Bonds: – A holiday shopping list of year end tax planning tips. – While holiday shopping, travel plans, and family get together’s tend to preoccupy most peoples’ minds during December, the last month of the year is a particularly good time to pay attention to investment taxation. Here is my holiday shopping list of year end tax planning tips.


Municipal Bonds

ETF Trends: – Muni bonds, ETFs near cheapest level to Treasuries this year. – With volatility fueling demand for safe-haven assets, municipal bonds and related exchange traded funds are trading around their cheapest relative to Treasuries this year.

Bloomberg: – Puerto Rico debt sets record low after utility meets investors. – Prices on Puerto Rico bonds fell to a record low after a meeting between investors and officials of the commonwealth’s power utility, which may restructure $8.6 billion of debt in coming months.

Janney Capital: – Municipal bond market monthly. – Everything investors need to know to successfully navigate the municipal bond market in 2015.

Putnam: – Tightening supply lifts muni market. – Shifting priorities for state and local municipalities is limiting new issuance in the municipal bond market, and supply has not kept pace with a rising demand.


Treasury Bonds

CNBC: – Jim Cramer – Why the Fed should sell its bonds. – As oil floods the market faster each day, one thing that Jim Cramer thinks there is just too little of is U.S. bonds. A spoonful of U.S. bonds is just what the world needs right now.

WSJ: – Benchmark U.S. bond yield closes at lowest since may 2013. – (Subscription) U.S. government bond yields hit new lows on Tuesday amid fresh signs of faltering global growth and market turmoil in Russia.

FT: – Fed must avoid lurching from crisis to bubble. – (Subscription) Should we get ready to party like it’s 1999? This question has dominated discussion among money managers for days, and it is hard to allocate any money without coming to a view on the answer.

Zacks: – Treasury bond ETFs surge on safe haven appeal. – Global growth concerns and rising US dollar are positive for Treasury bonds.


High Yield Bonds

Bloomberg: – Junk bond investors heading for first global loss in five years. – Junk bond investors worldwide are poised to forfeit all the gains they’ve accumulated this year as a sell-off triggered by plunging oil prices pushes the debt toward its first loss since the financial crisis.

WSJ: – Junk bond market turns negative. – Trading turmoil has dragged junk-bond returns into the red for the year, according to Barclays PLC data, the latest milestone in a second-half slump that has started to entice some buyers.

Businessweek: – High-yield fund outflows set to expand amid energy slide. – Investors are poised to pull money out of junk-bond funds for a third straight week as plunging oil prices roil the market and turmoil in the Russian currency market spur the hunt for safer debt.


Emerging Markets

WSJ: – A Pimco emerging-market fund hit by Russian-debt bet. – (Subscription) A Pacific Investment Management Co. emerging-market bond fund has stumbled over a large bet on bonds issued by Russian corporations amid a record-setting plunge in the ruble.

Deal Book: – Bond investors are skittish over emerging markets. – Petrobras in Brazil. Pemex in Mexico. Gazprom in Russia. The biggest energy companies in some of the biggest emerging markets sold billions of dollars of bonds to investors eager to capitalize on the high interest rates. As the price of oil plummets and local currencies plunge in value, those bonds are looking shaky.

FT: – Fed meeting may add to pressure on emerging markets. – (Subscription) The U.S. Federal Reserve could turn the screw even tighter on emerging markets on Wednesday by ignoring their struggles and ditching its pledge of low rates for a “considerable time”.


Investment Strategy

Convergence Investments: – In search of income: High-yield bond CEFs. – High-yield bond closed-end funds have experienced a significant sell-off in the first half of December as the markets digest concerns about the falling cost of oil.

Forbes: – Bonds wouldn’t be the only winners if 10-year yield drops to 1%. Jeffrey Gundlach, co-founder of DoubleLine Capital, a $60 billion fixed-income investment firm, last week said that if oil slides to $40 per barrel, the yield on the 10-year U.S. Treasury note could drop to 1%. Assume that Gundlach is right. If oil does fall to $40 and we do see a 1% yield on the 10-year Treasury, what should perform well?


Bond Funds

Bloomberg: – The best and worst exchange-traded funds of 2014. – The ETFs that did best in 2014 were tied to lower interest rates, sinking oil prices and a surging U.S. dollar. To come up with this year’s ETF Awards, Bloomberg senior ETF analyst Eric Balchunas considered performance, how much cash a fund attracted and how well an ETF was able to capitalize on trends.

ETF.com: – 5 most groundbreaking bond ETFs of 2014. – 2014 has been an interesting and turbulent year for the bond market. It has also been marked by the launches of a few groundbreaking income ETFs that provide investors more access to different pockets of the bond market than ever before.

Kiplinger: – 5 Great bond funds for 2015. – The bond bubble has to burst someday. These five funds are your best bets for that eventuality.


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