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Has The Bond King Lost His Crown?…The Rise of Real Yields…Who Saved Munis?…and more!

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Quartz: – America’s bond king just had his worst quarter ever, thanks to a wily Ben Bernanke. – It’s not always good to be the king. These have been tough days for Bill Gross, whose position as skipper of the megalithic Pimco Total Return Fund—the world’s largest mutual fund with over $295 billion in assets—has earned the camera-ready manager the nickname of “Bond King,”. But as it turns out, the Pimco Total Return Fund has had some of its worst months on record recently. Including both interest payments and capital losses, the fund was down 2.6% in June. What does this mean? The short version is that the Bond King—and his underlings—failed to foresee a significant shift coming from the Federal Reserve.

The Capital Spectator: – The rise of real yields. – It was obvious as far back as this past April that the positive connection between stocks and the Treasury market’s inflation forecast in recent years was coming apart. As the weeks rolled on and the divergence persisted, it was also clear that the break signaled a substantial change in the macro-market outlook. Exactly what was changing wasn’t conspicuous early on, but it now appears that we’re finally at the point of transitioning to something approximating normality. It’s been a long time coming. It looks like the end of the world to some, but the apocalyptic narrative in this case is one more overbaked view of the future until the numbers tell us differently.

MarketWatch: – How munis were saved by the retail investor. – As benchmark yields in the municipal bond market spiked and then eased over the last two weeks, retail investors played a key role in the reversal. That’s evident in the record volume of trades recorded by retail investors as the market bottomed out.

Learn Bonds: – Q2 in review – A tale of the bipolar bond market. – Dictionary.com defines “bipolar” as “characterized by opposite extremes.” In searching for a word to describe the bond market’s behavior during the second quarter of 2013, bipolar seems rather appropriate.

Bloomberg: – How Fed’s 7% jobless avoids deterring bondholders is mystery. – Unemployment will fall to about 7 percent in the fourth quarter, according to economists at five of the world’s largest banks, creating more confusion among investors about the Federal Reserve’s bond-buying plans.

About.com: – 2013 Second quarter bond market returns and performance review. – The bond suffered very poor performance in the second quarter, closing out their worst first-half since 1994, as the various worries that have plagued the market in recent years finally exacted a toll on returns.

FT: – Catastrophe bonds: Package of perils is a sound investment. – In a post-hurricane Sandy and post-central bank tightening world, you would think that bonds whose value is a bet against natural disasters and on US Treasuries would be crashing in price and liquidity. But you would be wrong.

FT: – Investors pull $9.9bn from Pimco fund in June. – Pimco’s Total Return bond fund, the world’s largest mutual fund, experienced the largest investor outflows in its history in June as investors yanked $9.9bn from the fund managed by Bill Gross.

Motley Fool: – High yield: Stocks or bonds? – With the Fed hinting that the easy-money flow might be slowed a bit and interest rates climbing. Where is the best place to invest your hard earned cash, stocks or high yield bonds?

Bloomberg: – California upgrade wagers spur best rally since ’08. – Investors in the $3.7 trillion municipal market are betting California is headed for the best credit rating in a decade as recovering housing prices help its economy grow the most out of the five largest U.S. states.

CNN Money: – Investors dumping bonds. – Investors bolted out of bonds last month, but not Dan Stebbins. While Stebbins has been following the Fed news, he has been standing pat. The 63-year old, who has been semi-retired for nearly a decade, invests less than a third of his and his wife Debbie’s nest egg in bonds, while a majority sits in stock mutual funds and annuities.

Globe And Mail: – In a rising interest rate world, should you own bonds or bond funds? – Interest rates have been falling for so long that many investors have never lived through a rising interest-rate cycle. The uptick in rates in recent weeks suggests that this state of affairs could end soon. Among other impacts, rising interest rates can inflict significant damage on what is supposed to be the safe side of an investment portfolio – bond assets. Invariably, when interest rates rise, the market value of bonds and bond funds falls and the loss could be substantial.

Navellier & Associates: – The ‘great rotation’ from bonds to stocks appears to have finally begun. – With U.S. Treasury bond yields shooting up so rapidly, it appears we’re finally seeing the start of a rotation from bond funds into equity funds, reminding me of a similar situation in 1994 when bond yields rose by 245 basis points, launching the most explosive phase of the 1990s stock bull market. Could it happen again?

Ed Bradford: – Are bonds reverting back to the old normal? – Bonds may be transitioning back to the old normal relationship of the ’70s-’80s-’90s.

Minyanville: – Is it time for high yield or high quality bond ETFs? – Income investors have seen their portfolios come under fire for really the first time in several years as interest-sensitive investments were walloped in the second quarter. There was virtually nowhere to hide in the fixed-income markets as both high quality and high yield bonds sold off. This has generated a great deal of hype about the monthly outflows from bond ETFs and mutual funds as investors have stampeded for the exits. However, I believe that the selling in bonds has been overdone and that July may be a turning point for this asset class.

Business Insider: – The CME is making tons of money on the bond market sell-off. – On May 29, CME logged the biggest trading day of its 165-year-history, with nearly 27 million contracts changing hands. That day a Fed official signaled the central bank’s plan to ease its buying of U.S. bonds, which has kept interest rates low. The new tack kicked up market volatility and gave traders a need to hedge interest rates with futures contracts.

ETF Trends: – Biggest ETF casualties of Fed taper talk: Gold, emerging markets and bonds. – The current taper talk has generated a huge shift in ETF flows as investors dash away from asset classes that have benefited in recent years from Fed quantitative easing and short-term interest rates near zero. In particular, investors have been fleeing ETFs tracking gold, emerging markets and longer-duration bonds.

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