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Jeffrey Gundlach did what he does best in January by defying conventional wisdom and placing a bet that interest rates would fall rather than rise in the first six months. Guess who came out on top?
As the Federal Reserve began tapering its bond buying in January, signalling a possible rise in interest rates, Gundlach wagered correctly that they would fall due to a sputtering U.S. economy and a shift by pension funds to bonds from stocks.
Bloomberg notes that Gundlach set about selling cash and added Treasuries and government-backed MBS with longer durations to his DoubleLine Total Return fund. He also bet that agency MBS prices would increase even as government purchases of the securities declined because of less issuance.
As a result Gundlach’s $34 billion DoubleLine Total Return Bond Fund (DBLTX) gathered assets as the majority of rival mortgage-backed securities funds lost investors in the first half of the year. DoubleLine Total Return also had the biggest 12-month yield along with the second-highest returns as of July 31 in the group of funds.
Gundlach also made money with riskier mortgage securities not backed by the government, which make up 27 percent of the fund. He started adding them to his portfolio in 2008 during the housing crisis when they were priced for more severe defaults. They have rallied since 2009 with the U.S. housing market recovery.
Todays Other Top Stories
LearnBonds: – A contrarian view of high yield bonds. – July was not the month to be buying high-yield debt. With major indexes HYG and JNK dropping by about 4% each, bond investors were in a rush for the exits on higher than average volume, especially during the past week. The move comes on the heels of a mild yield spike in Treasuries. Should you look at this weakness as a buy opportunity?
Marketplace: – “Mini” muni bonds — double your money, help your city. – Municipal bonds are the sort-of boring financial tool that big institutional investors use to hedge their bets. But this week, the city of Denver is hoping to attract a totally different class of buyers for its bond sale.
Bloomberg: – Muni regulators may force brokers to disclose bond trade prices. – U.S. regulators may require brokers to disclose the prices paid for municipal bonds that are resold to their customers, a shift aimed at injecting more transparency into the market.
Bloomberg: – Illinois yields approach junk as 2014 rally falters. – Illinois is back in the doghouse among investors in the $3.7 trillion municipal-bond market.
Bloomberg: – Puerto Rico muni bankruptcy plan would aid investors, Fitch says. – Allowing Puerto Rico’s public corporations to file for Chapter 9 bankruptcy protection would benefit holders of the agencies’ debt as well as the commonwealth, according to Fitch Ratings.
Bloomberg: – Is New York the next Detroit? – Next year New York city will set aside for pensions more than $8 billion, or 11 percent of the budget. That is an increase of more than 12 times from the city’s outlay in 2000, when the payments accounted for less than 2 percent of the budget. But instead of getting smaller, the city’s pension hole just keeps getting bigger, forcing progressively more significant cutbacks in municipal programs and services every year.
Financial Advisor: – Advisors put Illinois back in the municipal-bond doghouse. – Illinois is back in the doghouse among investors in the $3.7 trillion municipal-bond market.
LPL Financial: – Bonds take a breather. – After a strong start to 2014, bonds took a breather in July with the broad Barclays Aggregate Bond Index posting a modest loss. The decline follows a meager 0.05% return in June.
WSJ: – In bond markets, long is going strong. – Governments and companies around the world are borrowing cash they won’t have to repay for at least three decades, seizing upon this year’s unexpected fall in interest rates to lock in cheap financing for as long as possible.
Investing.com: – Is liquidity becoming an issue for fixed-income markets? – The fixed-income markets could be seeing a growing liquidity issue.
MarketWatch: – 10-year Treasury yield falls in line with bunds. – U.S. Treasury bonds jumped on Wednesday, with the 10-year yield dropping to its lowest yield since May, as geopolitical uncertainty had investors seeking the perceived safety of government debt.
WSJ: – U.S. Government bonds rally; Yields test 2014 lows. – U.S. Treasury prices rallied Wednesday as concerns over global growth and abandoned corporate-deal pursuits sent investors into haven assets.
High Yield Bonds
Income Investing: – BofA: High yield looks just fine, once fund outflows end. – With everyone wondering if the summer high-yield bond selloff is over yet, and whether or not it’s created a buying opportunity, Bank of America Merrill Lynch‘s high-yield strategy team weighs in today, tracing the current woes mainly to retail investor sentiment.
Yahoo Finance: – Junk bonds tumble, fears emerge. – CNBC’s Kate Kelly reports the fall in junk bonds is raising questions about the health of equities.
Minyanville: – High-yield bonds plus high volatility equals high pain. – Between higher capital requirements thanks to Dodd-Frank and collapsing market volatility, revenues and returns were inadequate. Not surprisingly, these firms and others suggested cuts were coming.
Fox Business: – High-yield: Junk or gem? – BlackRock managing director James Keenan gives insight into investing in junk bonds.
ETF Trends: – Junk bond departures could weigh on stock ETFs. – As speculative-grade debt and related junk bond exchange traded funds continue to weaken, some worry that the risk-off mentality will seep into the equities market.
Bloomberg: – Junk rout conundrum: If no one gets it, do I buy or sell? – As junk bonds plunge in value, many investors are wondering why. There’s no obvious explanation for the 1.5 percent decline in U.S. high-yield securities in the past month, or the $9.9 billion of cash pulled from mutual funds that buy the debt. But the question remains what to do about the selloff in junk.
Businessweek: – Argentina nerves drag distressed bonds to weakest in a year. – Investors in emerging-market distressed bonds are facing the weakest quarter in a year amid Argentina’s default and political crises in Russia and Ukraine.
FT: Argentina: – Unresolved debts. – Default creates uncertainty over the nation’s economic prospects and future sovereign debt cases.
ETF Channel: – 10 oversold ETFs. – These 10 ETFs have entered oversold territory. We define oversold territory using the Relative Strength Index, or RSI, which is a technical analysis indicator used to measure momentum on a scale of zero to 100. A stock is considered to be oversold if the RSI reading falls below 30.
Barron’s: – ETFs extend their reach, with unknown consequences. – Buying a government-bond fund is like paying to hear Yo-Yo Ma on the radio. So asserted Peter Lynch back in the 1980s, when he was riding high as manager of the Fidelity Magellan Fund. Things have changed a lot in the meantime.
Gross: Russian trade war escalates with food/technology on today’s headlines. Italy in recession. Deflation winning in much of the world.
— PIMCO (@PIMCO) August 6, 2014
Treasury talked about an ultra-long bond auction with TBAC but dealers were wary of making a market in longer durations.
— Mike Jackson (@bondscoop) August 6, 2014
#prepa isn’t active this morning but GOs are out for bid early. Cali, Minn, Wash and TX all net sells
— Taylor Riggs (@TaylorRiggsMuni) August 6, 2014