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Bond maven Jeff Gundlach has sounded the warning bell about corporate bonds, saying they’re at their richest level ever – compared to Treasuries.
Gundlach told investors on this mornings webcast that investment-grade corporate bonds “are at their richest level ever” compared to Treasuries with high yield bonds, “even more overvalued” and also “at the most overvalued level ever.”
Gundlach says that while default risk remains low for high-yield bonds, there are other risks to consider. “You’ve got to tread carefully when you’re at these valuation levels,” he said. “Don’t be fooled that you have no interest-rate risk in high-yield bonds. With this type of valuation levels against Treasuries, high yield bonds absolutely, positively have interest rate risk.”
Gundlach also put a downer on Treasury Inflation-Protected Securities (TIPS). Reiterating his advice to avoid TIPS which last year lost about 9%. Saying “TIPS have huge duration, and time and time again they’ve shown that when you have a short-term spike in interest rate risk the worst performer is going to be TIPS.
Puerto Rico bonds also didn’t escape his attention. Gundlach says there are “too many votes” tied to helping Puerto Rico out of its fiscal mess and that “I think Puerto Rico bonds are going to make it to the other side of the valley.” albeit with a bit of volatility along the way.
Todays Other Top Stories
FT: – Puerto Rico a step closer to default despite moves to cut deficit. – Creditors to Puerto Rico are meeting in New York on Thursday with lawyers and debt restructuring specialists as a moratorium on payments on the territory’s $70bn in public sector debt and an additional $40bn of unfunded pension liabilities appears increasingly likely, these specialists say.
AccountingWEB: – SEC Sets July 1 as start of municipal advisor registration. – July 1, 2014, is the date when the first set of municipal advisors will be required to register under new rules the US Securities and Exchange Commission (SEC) finalized last year.
Bloomberg: – Taxable deals surge to highest since Build America bonds. – Municipalities are set to extend the biggest wave of taxable bond sales since 2010 as issuers favor the unrestrained use of proceeds and target buyers beyond U.S. borders.
LearnBonds: – Taking a walk along the “BB” yield curve. – Today, let’s take a look at near investment grade paper of BB and BB+ quality to see what the market bears along the yield curve. The following list of five bonds was taken from available inventory at Fidelity on Tuesday, January 14 at roughly 2 PM. Bonds were selected randomly at intervals ranging from 5-28 years.
WSJ: – Treasurys slide on economic data. – Treasury bonds fell for a second straight session as a regional manufacturing report boosted sentiment over the economic outlook, dimming the allure of safe assets.
Business Standard: – Corporate bond issuances may pick up in 4th quarter. – Corporate bond issuances through private placements may pick up in the fourth quarter, owing to the expected stability in interest rates. Issuances, which had slowed in mid-July, may rise about 25 per cent compared to the last quarter.
The Street: – Bank loans instead of high-yield bonds as rates rise? – After rising sharply in 2013, yields on the 10-year Treasury note have paused at 3% following a weak December jobs report, but the long-term trend for interest rates still looks to be higher.
Hedge Fund Insight: – Hedged high yield bonds vs. bank loans in a rising rate environment. – Both hedged high yield bond and bank loan strategies can help limit risks associated with a rising interest rate environment, according to Fran Rodilosso, fixed income portfolio manager with Market Vectors ETFs.
BusinessWeek: Gross says Brazil no longer Pimco emerging-market favorite. – Pacific Investment Management Co.’s Bill Gross, hurt by a wrong-way bet on Brazil last year, said the nation is no longer a preferred emerging market for the world’s largest fixed-income manager.
WSJ: Hot demand for emerging-market bonds. – Emerging-market governments around the globe are selling bonds at the fastest pace on record, highlighting that demand for such debt remains robust despite a turbulent six months that left many investors scampering for the exits.
Insurance Journal: – Cat bond coverage reaches record $20 billion. – Aon Benfield Securities, the investment banking division of global reinsurance intermediary and capital advisor Aon Benfield, noted that the fourth quarter of 2014 continued to see more Insurance-Linked Securities. Eight catastrophe bonds closed during the period with a total value of $1.9 billion, contributing to a second half issuance total of $3.5 billion across 16 transactions, and a calendar year issuance total of $7.5 billion.
LPL Financial: – Why own bonds? – A look back at prior stock market pullbacks illustrates how bonds have historically provided good diversification benefits.
Smarter Investing: – Bank loans instead of high-yield bonds as rates rise? – After rising sharply in 2013, yields on the 10-year Treasury note have paused at 3% following a weak December jobs report, but the long-term trend for interest rates still looks to be higher.
BusinessWeek: – Singer prodding Hess proves bondholder boon. – Billionaire hedge-fund manager Paul Singer’s demand that Hess Corp. find ways to bolster shareholder returns is turning into a windfall for bondholders.
Investing.com: – 3 ETFs surging on weak jobs data. – The U.S. market was taken aback by the weak job growth data for December, suggesting that the Fed might take a more cautious stance on its plan to curb the massive stimulus program. Additionally, it gives more ammo to the idea that the Fed may hold off on more QE reductions for longer than initially expected. In December, the Fed finally decided to cut its bond purchases by $10 billion starting this month.
TheAsset: – Panoramic view of 2014’s bond markets (Part 2). – In 2014, financial markets are clearly in better shape than a year ago. Most equity indices are up for 2013, southern European sovereign bond yields are down sharply, and US treasuries have rallied after the US Federal Reserve’s surprise non-taper decision in September. But this positive outcome is not due to strong data or a long-term resolution of the European debt crisis.
Morgan Mymro: – The ultimate PIMCO high-yield bond portfolio. – Recently an investor approached me stating that bonds were just not that attractive. While a ~4% yield on investment grade corporate issues are, agreeably, not that attractive, asset-manager PIMCO has worked its way around it with high-yield alternatives that take advantage of low short-term rates to leverage out and take advantage of higher rates further along the yield curve.
WSJ: – Bond rally doesn’t surprise chart-watchers. – When bonds rallied strongly on the jobs report Friday, one group of market watchers wasn’t surprised that the 3% yield mark on the Treasury 10-year note again proved hard to break: chart-watchers. To them, bond market technicals had been pointing to a market overdue for a rally.
Minyanville: – Michael Gayed: Fed taper be damned, says bond market. – One of the most overhyped theories out there is the notion that as the Federal Reserve tapers its bond purchases and attempts to exit the bond market, yields have nowhere to go but up. The belief centers on the idea that the Federal Reserve “controls” the bond market, and that once it is no longer in it, a vacuum will result.
CNBC: – Top trends in mutual fund investing. – Investors rediscovered the stock market last year, reversing five years of little or no flows into stock funds and enjoying the headiest gains since the Internet bubble. Most experts predict the migration into stocks will continue and stocks will keep rising, though few expect anything close to a repeat of the S&P 500’s 2013 total return of 32 percent—one of the best annual gains in history.
Minyanville: – TIPS and the performance toss-up. – What would you do if I forecast out of tune, would you stand up and walk out on me? You very well might have if thirteen years ago this month I told you that the total returns on the iBOXX nominal TIPS index and 10+ year Treasury bonds would be essentially equivalent come January 2014.
WSJ: – Long-Term mutual fund inflows $2.88 billion in latest week. – Long-term mutual funds posted estimated inflows of $2.88 billion in the latest eight-day period, according to the Investment Company Institute, as investors put more money into bond and hybrid funds.
— Brian Chappatta (@BChappatta) January 15, 2014
Puerto Rico rallies, taxable debt boom, CA outlook raised, all this and oh so much more in today's muni brief, out at 7
— Joe Mysak (@JoeMysak) January 15, 2014
big GOs in #muniland trading today. vol of GO trading up 40% from average. Mass, NYC and Cali GOs most active
— Taylor Riggs, CFA (@RiggsReport) January 15, 2014