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E.S. Browning writes in today’s MoneyBeat blog from the Wall Street Journal, that record levels of stock and bond issuance spells trouble for the market.
Browning writes, “when new issues become as massive as they are today, it can mean markets are overheating and getting ready to give back some gains.”
U.S. corporate-bond issuance has exceeded $911 billion, so far this year, data from Dealogic shows. Emerging-market corporate-bond issuance has also reached $802 billion, just shy of the $819 billion in the same period last year.
Companies have been rushing to issue bonds ahead of rising interest rates caused by the Fed tapering the level of bonds it purchases as part of its economic stimulus program. A process known as Quantitative Easing. When the Fed postponed the tapering of QE as a result of the government shutdown and debt ceiling crisis, market rates fell and bond prices surged.
But Friday’s, stronger-than-expected non-farm payrolls report reignited expectations that the Fed will reduce stimulus, possibly in December. That pushed longer-term interest rates higher, making some conclude that exceptionally low rates and high bond prices are coming to an end.
The boom in stock and bond issuance doesn’t necessarily mean markets are about to collapse. Investors have demonstrated in the past that they can push markets to extremes. But James Barksdale, president of Equity Investment Corp., which manages $4.1 billion in Atlanta. says “People are becoming complacent about risk.” And that could spell trouble down the line.
You can read the full article here!
Todays Other Top Stories
Marc Gordon: – City, town, county, and state municipal bond issuers possessing elevated risk. – When it comes to municipal bonds I start from a simple premise, which is that I want individual municipal bonds to be in the “safe” money grouping where there is minimal risk to principal; for funds that are to be placed at risk, I would rather they be in the stock market with its potential for greater returns.
VAGazette: – Bond insurers sue Detroit over October 1 bond default. – Three insurance companies that guaranteed payments on Detroit’s voter-approved general obligation bonds sued the city in U.S. Bankruptcy Court on Friday over its October 1 default on $9.37 million in payments due to bondholders.
Before its News: – Muni Bonds, the elephant in the room. – The financial people on CNBC will never mention muni bonds, other than to chastise Meredith Whitney for predicting a muni bond collapse. 24 straight weeks of muni bonds outflows has never happened in US history, yet not a word about it in the news. The gravy train is drying up quickly.
Invesco: – Municipal Bonds: Outflows = Opportunity? Part 2. – Markets are complex organisms with many participants all operating on what they believe is reliable information, and acting in their best interests. Now, whether or not each person buying and selling into the same market is acting on “enlightened self-interest” is not clear at that moment, but their collective actions are what make markets. Markets are judged by their price action and their supply-demand factors.
TheGuardian: – Why invest in American cities? – Investors are avoiding bonds of U.S. cities and states, but they’re foolish to do so. The markets are rife with opportunities.
Learn Bonds: – Fixed income rarely remains fixed for long. – Wealth Effect Blogger looks at how investment income changes over the life of your portfolio.
MarketWatch: – Treasury yields jump on brighter economic outlook. – A robust jobs report caught the Treasury market by surprise on Friday, sending benchmark yields sharply higher as investors began to price in nearer-term expectations for when the Federal Reserve could start scaling back its bond-buying stimulus.
Bloomberg: – Toll delays investment-grade boost with debt for acquisition. – Toll Brothers Inc. (TOL) is postponing a boost to an investment-grade rating by offering $1.7 billion of debt to make an acquisition and refinance bonds due next year.
Stockopedia: – How to select sectors in a high yield portfolio. – Part 3 of our HYP Series. Last week in the series I outlined briefly the selection method for choosing HYP shares and this week I’ll look closer at some of the nuances that influence those choices. A number of my rules governing selection will in practice often need to be bent to a certain extent in order to satisfy the one rule that is never compromised, diversification and its soul mate, equal investment per sector. This trumps everything else.
HighYieldBond.com: – WellCare Health Plans bonds (BB/Ba2) price at par to yield 5.75%. – WellCare Health Plans today completed an offering of senior notes via bookrunners Goldman Sachs, JPMorgan, and SunTrust, according to sources. Terms were inked at the tight end of talk and at the target size of $600 million.
Eagle Tribune: – Beware of high yield investments. – In an attempt to generate more income, many are turning to complex investments promising higher returns. They are doing so, however, without conducting the due diligence required to understand what they are buying into and the risks they are assuming.
Emerging Markets Daily: – EM power rankings: EM fell on renewed Fed tapering concerns. – I start each week highlighting previous week’s best and worst performing emerging-markets single country exchange-traded funds, using the most heavily traded for each nation. Frontier markets are not included–yet.
FT: – Local currency bond market given revamp. – Yield-hungry investors undeterred by the developing world’s economic slowdown and the threat of reduced US stimulus, are hoping last month’s revamp of the local currency corporate bond market has breathed new life into an overlooked asset class.
CNN Money: – El-Erian: The market isn’t as fickle as it appears. – The market isn’t reacting to certain economic news as we might expect, but that doesn’t mean it isn’t rational.
IndexUniverse: – ProShares’ launches 2nd rate-hedged ETF. – ProShares has launched the ProShares Investment Grade–Interest Rate Hedged fund, which the firm is touting as the first investment grade bond ETF in the U.S. that provides a built-in hedge against rising interest rates.
BusinessWeek: – Investment-grade ETF uses interest-rate hedge to lure investors. – A new investment-grade bond exchange-traded fund from ProShare Advisors LLC is embedding interest-rate protection to accommodate investors who expect rates to rise as the Federal Reserve curbs its unprecedented stimulus.
Globe and Mail: – Rob Carrick’s guide to the best ETFs for your portfolio. – Recognizing that investors need help finding the right ETFs for their portfolios, we’re creating The Globe and Mail ETF Buyer’s Guide. In this first instalment, we look at 18 different ETFs offering core exposure to the Canadian stock market. Coming in the months ahead: Canadian dividend and bond ETFs, U.S. equity and dividend ETFs and international ETFs.
Bloomberg: – BlackRock’s Rieder fixes Fink’s big regret at bond funds. – Rick Rieder had a clear mission when he was named chief investment officer for BlackRock Inc. (BLK)’s actively managed bond funds in 2010: fix one of Laurence D. Fink’s biggest regrets.
BusinessWeek: – Pimco said to wager $10 billion in default swaps. – Pacific Investment Management Co. is wagering at least $10 billion in the credit-default swaps market that U.S. corporate bonds will gain as the Federal Reserve extends unprecedented stimulus into 2014, according to traders and investors.
John Dowdee: – 3 bond funds to spice up your portfolio. – This article assesses the risks and rewards associated with Closed End Funds and identifies three CEFs that have performed significantly better than their peers.
MarketWatch: – For retirement, are R-Bonds right for you? – About half of working Americans don’t have an employer-sponsored retirement plan—but a Treasury Department proposal could give those folks a new option, in the form of a special kind of savings bond.
Tom Lindmark: – Where do illiquid credit markets lead? – Liquidity is vanishing and that’s one mother of a problem. Right now the “great bond liquidity drought” is not a problem since central banks around the world are sucking up massive amounts of issuance. Though this drought isn’t front page news, don’t for a second think the Bernanke’s of the world aren’t aware of it, nor should you assume that they will suddenly withdraw and leave economies to the tender mercies of a dysfunctional bond market.
Yahoo Finance: – Fed’s biggest win? Bailing out subprime companies. – One of the quieter, yet most emphatic, successes of the Federal Reserve’s long-running easy-money campaign has been the way it has bailed out subprime corporate borrowers. It’s almost as if the Fed has made it “too hard to fail” for mid-sized to large companies with lower credit ratings.
MoneyNews: – Rising bond yields threaten stock market rally. – Ascending bond yields will keep the Standard & Poor’s 500 Index flat “at best” in coming quarters, with the possibility of a short-term correction, say Societe Generale strategists led by Alain Bokobza.
Thursday should be a wild day in the bond market. Yellen's confimation hearing at 10am and a new long bond auctioned at 1pm.
— Ed Bradford (@Fullcarry) November 11, 2013
Issue for mREITs is not as simple as "rates went up". Certain ones hedged more effectively than others. Others delevered at the trough
— David Schawel (@DavidSchawel) November 11, 2013