Gross Cuts MBS, Treasuries, Adds Junk… Bonds vs. Equities: Where’s The Bubble… Preparing for Rates Rise… and more!

WSJ: – PIMCO’s Gross cuts MBS, Treasuries, adds ‘Junk’. – Bill Gross, manager of the world’s biggest bond fund, cut mortgage-backed securities and Treasury bonds holdings last month while increasing holdings of junk debt.

FT:  – Bonds vs. equities: which is more bubblicious? – Global equities have now risen by 115 per cent since the major bottom on March 9, 2009. The bull market has been driven mainly by declining risk in the financial system, notably in bonds, and not by upward revisions to global GDP forecasts. In order to judge whether the equity markets are underpinned by economic fundamentals, we therefore need to look beyond GDP growth.

WSJ: – Preparing for day when rates rise. – “Don’t fight the Fed” has been a market mantra for the past four years. But some bond investors are starting to lace on their gloves, figuring that the Federal Reserve won’t be able to keep a lid on interest rates forever.

Learn Bonds: – 4 Convertible bond funds for investors to explore. – Financial Lexicon provides a few investment options for those interested in adding portfolio exposure to convertible bonds.  Despite the fact that I think financial markets are overextended at today’s prices, it is never a bad time to search for investment opportunities to add to your watch list for when the price is right.

FT: – Bond traders take bearish action on junk. – The bullish argument for junk is that you can earn a higher yield than other bonds in the coming year of a slowly growing economy, continued Fed bond buying and a low corporate default rate. But the fact is that shorting activity for the overall junk market is rising, which suggests the risk/reward equation is shifting among some investors, notably hedge funds who like the flexibility of ETFs.

Fundweb: – Asset managers hit back at ‘doomed’ fixed income warning. – Bond fund managers have hit back at suggestions the asset class is “doomed”, citing the opportunities to be found in corporate, high yield and emerging markets’ local currency bonds.

ETF Daily: – Buy falling angels for higher yields: Market vectors fallen angel high yield bond ETF. – Market Vectors thinks that the best way to get ahead in the bond market is with the “Falling Angels,” bonds that have fallen from investment grade to below investment grade. Over time, companies that have moved from investment grade to junk have given their debt investors higher returns.

Reuters: – “Cat bond” prices seen rising after Nationwide Mutual deal. – Strong demand for a $270 million catastrophe bond allowed its issuer, U.S. Nationwide Mutual Insurance Co, to price it more cheaply than expected, leaving investors looking for a higher return from future issues.

ETF Daily: – How we could get a bond market crash. – Interest rates are at historic lows. That makes bond prices relatively high. There’s pretty much nowhere left for rates to go but up. That might be good for buyers of bonds in the future, but terrible for those who hold bonds stuck at low rates. Bond funds, a favorite of conservative investors, would get hit particularly hard as their existing holdings would rapidly start to lose value. So just what would it take for the bond market to crash?

Forbes: – SEC nails Illinois for misleading pension disclosures in municipal bond offerings. – The Securities and Exchange Commission today finally charged the State of Illinois with securities fraud for misleading municipal bond investors about the impact of problems with its pension funding schedule as the state sold more than $2.2 billion in municipal bonds from 2005 to early 2009.

ETF Trends: – High-Yield ETFs eye multiyear highs; ‘Gravity’ about to kick in? – Junk bond ETFs such as SPDR Barclays High Yield Bond (NYSEArca: JNK) are trying to break out to their highest levels since the financial crisis. However, there are lingering fears about credit and interest-rate risks in high-yield debt ETFs, with some analysts saying it’s mathematically impossible for the funds to increase much further in price.

Barron’s: – Corporate bond issuance jumps amid upward pressure on yields. – Encouraged by last Friday’s strong employment report, and seeking a sweet spot between improving economic growth prospects and a potential rise in bond yields, companies are lining up to sell corporate bonds on Monday.

Minyanville: – A Meaningful Opportunity in fixed income. – We have seen a broad sell off in treasuries.  That has dragged down the more rate sensitive products with it, primarily investment grade bonds and municipal bonds.  Then you have seen the most credit sensitive products rally, with high yield, leveraged loans and EM outperforming.
There are several reasons we see a disconnect but let’s run through the important events that have shaped the market.

ETF Trends: – Investment grade corporate bond ETF yields 4%. – The iShares Investment Grade Corporate Bond (NYSEArca: LQD) is one of the largest fixed-income ETFs and provides a reasonable option for investors who don’t want to invest in speculative-grade corporate debt.

Barron’s: – Morgan Stanley: 30% chance that munis lose tax exemption. – how concerned should bondholders really be that muni-bond interest actually becomes taxable? About 30% concerned, according to Morgan Stanley Smith Barney muni strategists John Dillon and Matthew Gastall.

Cate Long: – Muniland’s changing landscape. – Want to take a 30,000-foot flyover of municipal market trading? The Municipal Securities Rulemaking Board has published its 2012 Fact Book. Let’s have a look at some of the highlights.

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Simon G

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