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DoubleLine founder and bond guru Jeffrey Gundlach says Treasury yields should hold steady for the rest of 2014.
“I think bonds are going to remain fairly stable this year,” Gundlach told CNBC, adding that the 10-year Treasury yield will continue to range between 2.2% and 2.8%.
“I don’t think Janet Yellen wants to raise interest rates, and I don’t really think there’s much of a reason to raise interest rates,” Gundlach said, while pointing to subpar U.S. GDP.
“GDP growth today is actually no different, slightly less than it was in 2012. And in 2012 nobody was talking about the economy being too strong or that interest rates needed to rise. In fact September 2012 was when we embarked on QE3, $85 billion of bond-buying per month. If the economy was too weak in 2012 to raise rates, and needed stimulus support , why is lower GDP today needing higher interest rates?”
In terms of any longer-term rate rise, Gundlach said “the idea that rates are going to get out of control on the upside is plausible, but not for another five years.”
Todays Other Top Stories
Yahoo Finance: – An investor’s guide to investing in municipal bonds. – 2014 has been an unexpectedly strong year for municipal bonds. How should investors navigate this robust market? Peter Hayes, BlackRock’s head of municipal bonds, joins Paul Vigna on MoneyBeat with the answer.
Income Investing: – How to diversify your muni investments. – It can be tempting for muni investors to load up on home-state bonds to target the tax-free income you get as a resident in most states. But diversification is as important in the muni market as it is to other types of investing. Alan Schankel, municipal bond strategist at Janney Montgomery Scott, says no more than half of a muni portfolio should consist of any single state’s bonds, with the rest consisting of bonds from various other types of issuers and sectors.
MarketWatch: – Fitch takes various rating actions on enhanced municipal bonds and TOBs. – Fitch Ratings has taken various conforming rating actions on enhanced municipal bonds and tender option bonds (TOBs) corresponding to actions taken on their associated enhancement providers or underlying bonds.
Barron’s: – BofA sees limited harm to munis from new bank liquidity rule. – Bank of America Merrill Lynch today weighs in on the new federal regulations governing what liquid, easy-to-sell securities big banks need to hold in reserve, regulations that so far exclude municipal bonds from this category of high-quality liquid assets. BofA is among those who see limited harm to the muni markets.
Stern Brothers & Co: – Muni volume shows positive signs for fourth quarter. – As municipal supply has been down for 2014 as a whole compared to 2013, strong increases in August issuance could be an indicator of a strong fourth quarter to follow.
Bloomberg: – Chicago water bonds seen shielded from pension woes. – Chicago, bearing the biggest pension burden among the nation’s most-indebted localities, is selling water bonds for the first time since 2012. Investors say the deal’s strengths outweigh the city’s fiscal woes.
Bloomberg: – Guam power authority sets $77 million bond sale in biggest rally. – The Guam Power Authority plans to sell $77 million of bonds as soon as next week as debt from the Pacific island leads a rally in the $3.7 trillion municipal market.
WSJ: – Muni bonds are safer than you think. – Given all of the negative headlines about state and municipal fiscal problems, it’s easy for someone to misperceive the default risk among muni bonds. Living in Illinois, I’m certainly not one who is going to sugarcoat the fiscal issues. But what I will say is that municipal bonds are far safer than most people probably realize.
WSJ: – Banking regulators open to including municipal bonds in bank financing rule. – Federal banking regulators said they plan to revisit a decision to exclude municipal securities from a postcrisis rule aimed at ensuring banks have enough cash on hand to survive a crisis, saying they are open to allowing some debt issued by states and localities to count as a “safe” asset.
Becoming the Capitalist: – What is a laddered stripped treasury? – ‘Stripped Treasuries’ are Treasury securities that pay out no interest, but are sold at a discount from their face value and at maturity can be cashed in at face value. This type of bond is sometimes called a ‘zero-coupon bond.’ In effect, the interest earned is reinvested instead of paid out. The advantage of this is that the interest doesn’t have to be reinvested every six months, but automatically earns the rate of the original bond.
Bloomberg: – Traders brace for bond volatility before rate increases. – Options on U.S. Treasuries reached the most expensive in more than a year relative to equities, reflecting bets that monetary tightening from the Federal Reserve will generate bigger price swings in government bonds.
MarketWatch: – 4 reasons why the smart money has it wrong this time. – Conventional wisdom holds that bond investors are the “smart money” in the market, due to heavy institutional participation and their long-term, forward-looking investments. They are viewed as disciplined, unsentimental and focused on the numbers.
MarketWatch: – 10-year Treasury yield eyes highest close in six weeks. – Treasury prices slid Tuesday, putting the benchmark yield on track to rise to a six-week high.
Market Realist: – Overview: Investment-grade bond ETFs. – U.S. investment-grade bonds can provide investors with a safe and steady income stream. They’re issued by the U.S. Department of the Treasury and corporates—for example, blue-chip companies like Comcast (or CMCSA) and Mondelez (or MDLZ). The issuers have a very high ability to service the debt issued. There’s little risk of default.
High Yield Bonds
Forbes: – JC Penney sets $350M bond offering; existing debt surges in trading. – J. C. Penney is seeking to test the primary high-yield market for the first time in 4.5 years with a $350 million offering of five-year (non-call life) senior notes as part of a refinancing exercise on three near-term maturities. J.P. Morgan, Barclays, and Goldman Sachs are joint bookrunners, and an investor call is scheduled for 10:30 a.m. EDT, with pricing scheduled for late this week, according to sources.
FT: – CLO surge prompts regulatory concerns. – Sales of bonds backed by riskier US corporate loans have surged to their highest level in seven years, helping to fuel a leveraged lending boom that is concerning regulators.
Emerging Markets Daily: – Emerging market credit strategy. – Deutsche Bank warns investors to brace for more risk in some emerging market bond portfolios.
Bloomberg: – PIMCO hires ex-GoldenTree’s saffari for emerging markets. – Pacific Investment Management Co., the world’s largest bond manager, hired Said Saffari as a money manager focusing on company debt in emerging markets.
Emerging Markets Daily: – Hindsight: Emerging market bonds’ 200% return. – Bank of America Merrill Lynch research today reminds investors how lucrative and how risky emerging market bond investing has been.
Bloomberg: – Don’t hate credit, just use leverage for 10% returns. – Stop complaining junk-bond yields are too low. Instead, just use borrowed money to juice returns. That’s the message from Citigroup Inc. analysts, anyway.
Investment News: – SEC assessment of mutual fund risk could lead to more disclosure. – The Securities and Exchange Commission has started to work on rules that could require more transparency about mutual fund portfolio holdings and limit their use of alternative investment strategies, according to a story in today’s Wall Street Journal.
US front end getting steeper – 3s over 1% a three plus year high
— David Schawel (@DavidSchawel) September 9, 2014
*SCHUMER: MUNICIPAL DEBT SHOULD BE CONSIDERED HIGH-QUALITY DEBT
— Brian Chappatta (@BChappatta) September 9, 2014
Barring a rally, this will be the highest closing yield on 2s since May 2011
— Ed Bradford (@Fullcarry) September 9, 2014