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Investors Jump For Junk…Detroit Makes Bondholders Nervous…Why You Should Still Own Bonds…and more!

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WSJ: – Junk jumps as bonds boom. – Bonds issued by low-rated U.S. companies are making a sound recovery from their spring swoon, in the latest sign investors remain thirsty for income-producing investments.

FT: – Detroit bond decision risks raising costs of other states. – Local governments across the U.S. face potential reviews of their credit ratings and higher funding costs if a financial restructuring proposal for Detroit is endorsed by a bankruptcy judge.

WSJ: – Your portfolio still needs bonds. – Investors are understandably concerned. After all, interest rates are still in a historic low range, and bond returns are likely to be lackluster over the next decade or so—in sharp contrast to the bull market in bonds we experienced over the past 30-plus years. But instead of dumping bonds wholesale or trying to time purchases and sales around interest-rate movements, long-term investors would do well to backspace a moment and ask themselves why they own bonds in the first place.

Learn Bonds: – Here’s how much Detroit bond exposure your ETF has. – On Thursday of last week, the city of Detroit filed for bankruptcy. This was the largest municipal bankruptcy in United States history.  Given the size of the bankruptcy and the attention it is getting in the press, municipal bond investors should be aware that headline risk is now a reality they must deal with.

Learn Bonds: – What tax rate is applicable to your investment decision? – There is disagreement as to which income tax rate should be applied when deciding whether to purchase, for instance, a municipal bond or a corporate bond. Some people say that you should use the tax rate for your last dollar of taxable income―the highest tax rate applicable to you. Other people say you should use your overall average tax rate. The former is often, but not always, true. The latter is never true. The correct answer depends upon the situation.

 FT: – Investors show strong appetite for Treasury inflation bonds. – Investors displayed their strongest appetite for a sale of new Treasury inflation bonds since 2006, in a sign that last month’s bond market sell-off has boosted the sector’s appeal.

Artemis: – Tight spread environment for catastrophe bonds to continue. – In its latest look at the catastrophe bond and insurance-linked securities (ILS) market reinsurer Swiss Re suggests that the tight spread environment seen on cat bond issues through 2013 so far is set to continue. Tighter spreads and lower pricing has been driven by investor demand providing an attractive environment for cat bond sponsors.

Hartford Business: – Keep municipal bonds tax exempt. – Changing the tax treatment of interest on state and local bonds is an unfortunate and ill-timed idea, particularly at a time when more capital investment is needed for our aging infrastructure and government budgets are strained by a slow economic recovery. The net effect of this change would be a further drain on our economic recovery.

Michael Harris: – Fundamental factors that can drive U.S. bond yields lower. – A rise in yields makes bonds cheaper, and if the outlook for the economy is not all that good, it makes bonds more attractive to portfolio managers. Here are three major events that may cause a flight to quality in the near future.

Tabb Forum: – New role for buy side in corporate bond market: Liquidity providers? – With the shift in the corporate bond market from voice to electronic trading, and from capital facilitation by dealers to agency facilitation, will the largest institutional investors commit their own capital to replace that which has been withdrawn by dealers?

Forbes: – Why high yield investors shouldn’t overreact to the recent selloff. – After a multi-year period of strong returns, the high yield category still offers good value with one caveat: The near perfect environment for fixed income returns will inevitably change.

Wade Slome: – Confessions of a bond hater. – For those investors who thought bonds were as safe as CDs, the recent -6% drop in the iShares Aggregate Bond Index didn’t feel comfortable. Although I am still an enthusiastic stock cheerleader (less so as valuation multiples expand), there has been a cost for the gargantuan outperformance of stocks since March of ’09.

Reuters: – Bankers keep eye on cap rates in high-yield M&A trades. – As US Treasuries have stabilized and yields tighten anew, bankers are optimistic that pending M&A trades in the US high-yield bond market will find strong demand from investors – and not hurt the underwriters bringing the deals to market.

ETF Trends: – Junk bond ETFs attract yield hunters after sell-off. – High-yield corporate bond ETFs are rebounding following their June swoon as some income investors think it’s safe to go back in the water.

Bloomberg: – Junk bonds whipsawed with biggest gains in 18 months. – Junk bonds, which posted the worst loss in almost two years in June, are now staging a comeback with the biggest gain in 18 months.

The Independent: – Don’t write off bond exposure just yet. – Bonds have been in the spotlight ever since Ben Bernanke, chairman of the US Federal Reserve, suggested American quantitative easing could be tapered this year. Investors interpreted this as the first stage towards an rise in interest rates, which would be negative for bond markets.

Bloomberg: – BofA to Goldman lead tsunami of bank bond sales. – Banks around the world are stepping up bond sales, with lenders from Bank of America Corp. to Goldman Sachs Group Inc. (GS) accounting for the biggest share of dollar-denominated investment-grade deals in two years.

WSJ:  – The bond boom—and beyond. – Companies around the globe have been rushing to issue new debt, encouraged by the lowest interest rates since the 1950s. New bond issues set a record last year, the average yield for high-yield junk bonds in early May fell below 5% for the first time.

Financial News: – Dark pool call to transform corporate bond trading. – European buy side traders have called for a fresh approach to corporate bond trading to ease the problems of liquidity the market is expected to face when new regulations come in for fixed income next year.

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