Hedge Funds Drive Market Turmoil and Today’s Other Top Stories

The bond markets uncharacteristic rise on Oct. 15 has been blamed on hedge funds moving quickly to increase their long exposure to U.S. interest rates according to a Federal Reserve survey.

Disappointing economic data on the morning of Oct. 15 sent stocks tumbling and bond prices higher, as global growth fears and other concerns sparked a short-lived bout of turmoil in world markets, according to a U.S. Federal Reserve survey of senior bank credit officers.

Macro-oriented and other hedge funds lengthened their net positions between 8:30 a.m. and 10 a.m. that day, according to about two-thirds of respondents to the Fed’s December Senior Credit Officer Opinion Survey, released today in Washington.

About $672 billion was wiped from global shares on Oct. 15 and average bond yields around the world fell after reports showed bigger-than-projected drop in U.S. retail sales. The Standard & Poor’s 500 Index of U.S. stocks plunged more than 3 percent.

The quarterly survey, compiled by the Fed, found hedge funds had little or no change in their net positions in U.S. interest rates in the two weeks preceding that date.

Dealers reported that other types of clients, including mutual funds, pension plans and endowments, made little or no change to interest-rate positions on the morning of Oct. 15.

Some dealers made their own adjustments, increasing margin requirements for contracts on short-term U.S. interest rates for several classes of clients, including mutual funds, pension plans, endowments and separately managed accounts. Most dealers said margin requirements weren’t changed for hedge funds and for insurance companies.


Todays Other Top Stories

Municipal Bonds

Bloomberg: – Municipal defaulters decline amid improving economy. – Municipal issuers are defaulting at the slowest pace since at least 2010 as a strengthening economy boosts local-government finances.

Pro Publica: – Behind New Jersey’s tobacco bond bail out, a hedge fund’s $100 million payday. – When New Jersey decided to bail out some of its tobacco bonds, the state gave up $400 million in future revenues to pocket $92 million immediately, an arrangement that also helped one savvy investor cash in on a big bet.

Breitbart: – Pension crisis pushes Illinois towards default. – In the world of investment, Illinois’ credit rating is equal to the African nation of Botswana, where the per capita income is around $15,000. This comparison, though, is unfair to Botswana, which unlike Illinois enjoys a growing economy. After decades of Democratic rule led by public sector unions, Illinois is the dead-beat uncle of America’s states.


Bond Market

Think Advisor: – Under the Hood: What you need to know about bonds, Pt. 1: Types and Ratings. – With rates likely to rise in 2015, here’s how to understand the different types of bonds and what their ratings mean.

Businessweek: – Caution rules in best bond year since ’02: Credit markets. – In the best year for the global bond market in more than a decade, investors were rewarded more for being cautious than for taking big risks.

WSJ: – Bond market’s head fake lesson for 2015. – With hindsight, one of the best trades of the year was very simple. An investor could have turned up on Jan. 2, loaded up on long-dated eurozone, U.S. and U.K. government bonds—and then spent the rest of 2014 doing whatever they liked.


Treasury Bonds

Reuters: – Speculators trim net shorts in U.S. 10-year T-note futures -CFTC. – Speculators’ net bearish bets on U.S. 10-year Treasury note futures fell in the latest week from their highest level in more than 4-1/2 years, according to Commodity Futures Trading Commission data released on Tuesday.

WSJ: – U.S. government bonds stronger, wrapping up big year. – U.S. government bonds are poised for the biggest annual rally in three years as worries over the uncertain global economy and the ripples from tumbling oil prices boosted demand for haven assets.


Investment Grade Bonds

Money News: – Apple’s Atlantic bond crossing sets 2015 course. – U.S. companies are forecast to cross the Atlantic to raise funds in euros at the fastest pace in at least eight years in 2015 as borrowing costs in Europe fall below dollar rates by the most in a decade.


High Yield Bonds

Hawkinvest: – 2 high yield investments that could double your money in about 7 years. – A recent pullback in the high yield sector has created another buying opportunity. Buying pullbacks in junk bonds and the high yield sector has been generally rewarding over the past few years. Interest rates are not likely to rise significantly in 2015, and that means the hunt for yield continues. Investments that yield about 9.5% or more can double your money in as little as 7 years.

Barron’s: – High-yield bonds on pace for 2.5% return in 2014. – The wild ride for junk-rated corporate bonds in 2014 saw the market gain nearly 6% by midyear, then lose all of that (and then some) by mid-December, and then bounce back strongly over the final two weeks of the year to leave the market’s 2014 return at 2.5% heading into the last day of 2014, according to a benchmark Bank of America Merrill Lynch index.


Emerging Markets

USA Business Daily: – Emerging market bond issuance hits record high in 2014. – According to Thomson Reuters data, total issuance from emerging market borrowers, both sovereign and corporate, amounted to nearly $480 billion in 2014, across 742 deals, compared with $439 billion in 2013 and 725 deals.

WSJ: – Dollar’s surge pummels companies in emerging markets. – (Subscription) From Brazil to Thailand, firms that sold bonds in dollars now face steep, even staggering costs.


Catastrophe Bonds

Artemis: – Cat bond price stabilisation becoming more evident: Moody’s. – Signs that the catastrophe bond pricing environment has become more stable are becoming increasingly apparent as the end of 2014 approaches and the pace of price declines continues to slow, according to a report by ratings agency Moody’s.


Investment Strategy

Matthew Sauer: – What do 2014 winners say about 2015? – The yield curve flattened in 2014 as short-term rates increased and long-term rates declined. Utilities benefited from lower long-term rates and is set to finish the year as the best performing sector. The U.S. dollar rally in 2014 looks like the early stage of a much larger rally.


Bond Funds

FA Magazine: – Bond mutual funds attracted more money as equity funds declined in November. – Bond mutual funds saw an inflow of cash from investors running away from equity funds in November, the Investment Company Institute reported Tuesday.

Investing.com: – Top ETF stories of 2014 worth watching in 2015. – The stock market across the globe has given mixed performances in 2014. Several events will likely spill over into 2015 and continue to impact the ETF world either in a positive or a negative way. Below, we have highlighted some of these events, which will hog investor attention in the New Year:


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