To get the Best of the Bond Market delivered to your email daily click here.
Money Beat: – The Intelligent Investor: How funky is your 401(k)? – Is the invasion of the “offbeat bond funds” about to reach your 401(k)?
Barry Ritholtz: – U.S. 10 year yields in perspective. – The move in the 10 year yields has led to all sorts of speculation as to the underlying cause. Since none of this is within our control, all we can do is look at this from a longer term perspective to put [it] into broader context .
Yahoo: – Declarations of bond-market death spasms. – Slowly improving U.S. economic conditions, receding fears of a financial-crisis sequel, preparation for the Fed to pare back its bond buying and the flooding of markets by the Bank of Japan with ultra-cheap yen have brought widespread declarations that the 30-year bull market in bonds is in its death spasms. But what’s the big picture?
Learn Bonds: – Why is there so much hysteria over Fed tapering? – During the month of May, intermediate-to long-term benchmark Treasury yields rose 40 to 50 basis points, depending on the security. As the month wore on, talk in the financial media surrounding the reasons for the rise in rates centered more and more on the possibility of the Fed tapering QE. Not only did bond yields rise, but certain preferred stocks, REITs, and dividend-paying stocks also took it on the chin as fears of rising rates spread. This begs the question: Are assets so overvalued that merely tapering will cause notable selling?
Fortune: – What the markets are trying to tell us. – PIMCO’s Mohamed A. El-Erian, says volatility is on the rise, liquidity is getting tougher in certain places, and anxiety is on the rise. What are the markers trying to tell us?
Morningstar: – Once again: Are bonds a bubble? – Some popular financial phrases have a precise definition. Bear market, for example, has the strict meaning of a stock-market loss exceeding 20%, in addition to the informal sense of “it seems as if every day is down.” Similarly, leverage can be used generally to convey a high level of exposure to an asset, or it can be calculated to the percentage point. Bubble, on the other hand, resists such precision. So what exactly is the definition of a bond bubble?
Bloomberg: – Illinois awaits further credit cut after latest pensions failure. – With handshakes, hugs and a few kisses, Illinois lawmakers left the capitol May 31 without repairing a leaking pension system that they have been saying for years must be fixed. Now they wait to discover the consequences of inaction; Illinois, already the lowest-graded state in the nation, faces yet another credit-rating cut.
FT: – Catastrophe bonds prove anything but a disaster. – Growing interest from pension funds, life insurers and wealth managers has seen the volume of bonds outstanding rise from $13.7bn at the end of 2011 to a record $17.7bn, according to Jean-Louis Monnier, head of insurance-linked securities for Europe at Swiss Re Capital Markets, who sees scope for the sector to expand to between $40bn and $50bn.
David Schawel: – Time for tapering: What QE has done, and why it’s time for the Fed to stop. – As the market debates whether the Fed should “taper” the pace of QE asset purchases, an uncomfortable truth is beginning to face market participants. With the majority of QE benefits already having been felt, the tapering of QE is inevitable at this point and the market’s reaction, when it occurs, will not be pleasant. We will look at what the market is pricing in, how QE has impacted the economy thus far, and why it’s time for the Fed to stop incremental purchases.
Bloomberg: – Meredith Whitney offers barrage of numbers, errors. – There are 89,004 local governmental entities in the U.S. Take four or five or a dozen headlines and “connect the dots,” and you no doubt have a trend, maybe even a book. What you don’t have is an accurate picture of municipal finance.
A Dash of Insight: – Will the interest rate surge continue? – Since 2008 investors have preferred bonds to stocks. When the valuation difference became compelling, the stock rebound was led by defensive sectors – anything with attractive yield. We are now at a crucial point in this trend. Last week’s spike in long-term interest rates has driven the ten-year yield back above the dividend yield on the S&P 500 for the first time since 2011.
ETF Trends: – Vanguard International bond ETF to list next week. – Vanguard plans to launch its first diversified international fixed-income ETF next week.
Bloomberg: – Niagara falls near junk as casino spat drains cash. – Niagara Falls, the New York tourist mecca caught in the middle of a $600 million casino dispute between the state and the Seneca Nation of Indians, may run out of cash as soon as November. Investors are pushing the city’s borrowing costs to a 10-month high.
Casey Quirk: – When the tide turns. – Leading ﬁxed income investment managers have enjoyed the greatest success of all industry business models during the past decade. A long-term secular decline in interest rates globally has helped ﬁxed income asset managers double revenue since 2000, and businesses that predominantly manage ﬁxed income currently are more proﬁtable than their equity counterparts. But storm clouds, in the form of a zero or rising interest rate environment, are already here.
Financial News: – Bonds overpriced say strategy chiefs as equities beckon. – Investment strategists believe that bonds are overpriced and that the best opportunities for returns over the next 12 months lie within the equity markets.
Environmental Leader: – Could climate bonds become a major force in green finance. – So-called “green” or “climate” bonds, being issued by a number of financial institutions and state governments as a means of generating funding for sustainable development and clean energy technology, are becoming increasingly popular and could become a major new force in the green investment world, according to the Globe-Net.
Reuters: – Fed can soon “seriously consider” stimulus pullback – Lockhart. – The Federal Reserve will soon be able to consider reducing the pace of its bond-buying stimulus, a top Federal Reserve official told Fox Business on Monday.
Mark Dow: – Trading Fixed Income: Falling knives, and EM local. – There has been massive pain in the fixed income world over the past three weeks. The backup in Treasury yields finally attained the speed necessary to shake carry traders across the fixed income spectrum into shedding risk. It got particularly ugly in EM local fixed income and currencies. The risk-shedding eventually spilled over into the equity markets. Odds are good now that we are at that kind of win-win juncture for fixed income risk that you don’t that often see.
ETF Trends: – High-yield bond ETFs slip on rate, liquidity fears. – Rising Treasury yields and talk of the Federal Reserve tapering its bond purchases have hit fixed-income ETFs across the board. However, high-yield funds are falling harder than Treasury ETFs of similar durations as credit spreads widen a bit.
FT: – Detroit meets with Big Apple bankers for new financing. – Officials representing Detroit were in New York City in the last couple of weeks looking for rescue financing for the financially challenged city, according to two banking sources familiar with the potential transaction. The financing may be tied to lighting improvements, said the two banking sources.
Bloomberg: – Massachusetts becomes first state to offer green bonds. – Massachusetts, taking a cue from the World Bank, is selling $100 million in debt called Green Bonds, saying it’s the first U.S. state to issue such securities to fund environmental projects.
Another day of "Bond Bubble Paradox" and being careful what you wish for, along with some bad data.
— Peter Tchir (@TFMkts) June 3, 2013