Government Bond Yields Continue to Tumble and Today’s Other Top Stories


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Bond yields in the U.S. and Europe continued to fall on Wednesday following dovish comments from ECB President Mario Draghi at last week’s Jackson Hole symposium.

Yields on German 10-year bunds briefly fell below 0.9% for the first time ever today, to 0.897%, before retreating to 0.910%, according to Tradeweb data.

To see a list of high yielding CDs go here.

Draghi’s speech came after the eurozone economies reported a string of of disappoint reports suggesting that growth had stalled and prices were falling.

Concerns about the stagnation of the Eurozone is forcing global Investors in search of a better return to move into U.S. Treasuries pushing the 10-year Treasury note price up 6/32 today and lowered its yield to 2.370%, while the 30-year bond is up 15/32 to yield 3.128%, a shade above its 2014 low.

In Europe, yields on 10-year Italian (2.346%) and Spanish bonds (2.088%) set new lows and once again trade below comparable Treasury yields, which is pretty extraordinary given the respective states of their economies.


Todays Other Top Stories

Learn Bonds

LearnBonds: – How many bonds should you own? – Bond investors who opt to look at single issues as opposed to pooled products like ETFs, CEFs, and open-ended bond funds, have a variety of choices to make: how much credit risk to take, what kind of blended duration to employ, and yes, how many total bonds to carry in the portfolio. While fund managers are paid to make those decisions, the do-it-yourself, individual investor needs to take charge of matters on their own.


Municipal Bonds

Bloomberg: – Puerto Rico lures Franklin as equity funds buy junk: Muni Credit. – Franklin Resources Inc. (BEN) is leading money managers in adding junk-rated Puerto Rico bonds to mutual funds that focus on equities or other asset classes, even as the island’s main power utility moves to restructure.

Bloomberg: – Puerto Rico 2026 G.O. advances to highest price since February. – Puerto Rico general obligations maturing in July 2026 rallied today to the highest average price since Feb. 20, according to data compiled by Bloomberg.

Bloomberg: – Cumberland’s Kotok likes stocks, ‘overlooked’ muni’s (audio). – David Kotok, co-founder and chief investment officer at Cumberland Advisors, says deepening weakness in the euro area economy will boost the U.S. dollar which in turn will be good for U.S. stocks and for “spread products” in the U.S. fixed-income market.

Reuters: – Atlantic City to issue $140 mln tax appeal bonds later this year. – Atlantic City, the down-on-its-luck New Jersey gambling mecca, will sell up to $140 million of municipal bonds later this year to pay for property tax appeals by its overvalued casinos.

Pittsburgh Post: – Pittsburgh to get lowest interest rate ever for bonds, director says. – Pittsburgh’s $50.4 million bond sale, largely to finance infrastructure work such as roads and bridges, will come at the lowest interest rate the city has ever received, a city official says.

Theme Report: – Fed claim municipal bonds aren’t liquid. – In what could be a major blow to banks, and underwriters the Federal Deposit Insurance Company is reviewing a new rule that would make municipal bonds not qualify as a liquid investment. This would be a reversal of over 100 years of the way tax free bonds have been held by banks.


Bond Market

Chad Shoop: – The demise of American yield. – The smart money, aka Wall Street, typically sets the tone in the market, leaving retail investors a step behind.

LPL Financial: – Bond yields around a first rate hike. – Historically, bond yields have begun to move more forcefully four to six months ahead of a first rate hike from the Fed. We believe the rise in interest rates may begin sooner this cycle due to lower yields and more expensive valuations. We favor capitalizing on year-to-date bond strength and recommend a defensive posture consisting of short to intermediate bonds.


Treasury Bonds

Bloomberg: – U.S. Treasuries advance on value versus G-7 peers. – Treasuries advanced, pushing 10-year yields to the lowest level in almost a week, as the collapse of yields in Europe prompted investors to reach for higher-yielding U.S. government bonds.

Bloomberg: – Why investors are seeking the safety of Treasuries. – TIG Securitized Asset Fund’s Jeff Lewis and Citigroup’s Tobias Levkovich discuss the state of the U.S. bond and stock markets with Matt Miller and Julie Hyman on “Street Smart.”


Investment Grade Bonds

ETF Trends: – High-quality corp. bond ETFs show double-digit annual returns. – High-quality corporate bond exchange traded funds have been one of the best performers in the fixed-income space, with investment-grade corporate debt on pace to generate double-digit annual returns.


High Yield Bonds

ETF Trends: – High-yield muni ETF navigates its way to new highs. – Despite Puerto Rico debt restructuring concerns, ongoing debt settlement talks in Detroit and elevated fears of additional public pension-induced municipal bankruptcies in other parts of the U.S., municipal bond ETFs have been solid performers in 2014.

Morningstar: – High yield bonds are expensive. – High yield bonds do not look stretched in terms of excess yield, but they do look expensive in terms of total yield.

ETF Trends: – High-yield muni ETF navigates its way to new highs. – Despite Puerto Rico debt restructuring concerns, ongoing debt settlement talks in Detroit and elevated fears of additional public pension-induced municipal bankruptcies in other parts of the U.S., municipal bond ETFs have been solid performers in 2014.


Emerging Markets

FT: – Argentine default fails to halt emerging market bond rally. – (Subscription required) In late December 2001, when Argentina defaulted on nearly $100bn in debt, it took emerging market bonds just 48 hours to start staging a rebound, recalls Jerome Booth, a veteran emerging market analyst.

FT: – Why EM asset managers are on a hair trigger for selling. – (Subscription required) Hyun Song Shin, head of research at the Bank for International Settlements, has been sounding alarm bells over the debt issued by emerging market corporates since last year. His latest research, presented to the BIS AGM last month, explains how investors’ hunger for yield has put them on a hair trigger for selling should anything go wrong.


Investment Strategy

ValueWalk: – The case for active bond management. – There have been instances where the passive approach to bond investing produced significant underperformance relative to a benchmark. Index funds are at a significant disadvantage to active portfolios in which managers incorporate valuation into their decision making process. The many nuances and inefficiencies of the fixed income market create both difficulties for indexing and opportunities for active management.

ETF.com: – Looking toward Non U.S. bonds. – While the suite of non-U.S. ETFs is not as robust as on the U.S. side, there are numerous differentiated funds available to use in building a diversified fixed-income portfolio.

Citywire: – Ian Lance takes cash to 30% and warns HY correction not over. – RWC equity income managers Ian Lance and Nick Purves have upped their holdings in cash to almost 30% due to a dearth of valuation opportunities and a continuing shakeout of carry trade securities.

BlackRock: – How to position your portfolio as rates start to rise. – With the Fed likely to begin raising rates in the first half of 2015, you may be wondering how to position your portfolio for the coming period of rate normalization. Russ shares his take.

Financial Post: – Investors should keep favouring stocks over bonds. – The end to ultra-loose monetary policy around the world is a potential headwind for both stocks and bonds, but investors should continue to hold more of the former than the latter, says Citigroup Global Markets.


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Simon G

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