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Best of the Best of the Bond Market for March 2nd – Low Rate Strategies

Learnbonds Best of the Bond MarketCovering the best stories over the last week from Learnbonds.com and around the web.

Learn Bonds: – Strategies for the current low and rising interest rates environment. – No one knows for certain whether interest rates will rise or fall, how much they will rise or fall, and how quickly they will rise or fall.  The odds are far in favor of interest rates rising though. The key question for investors is:  “What actions should I take in response to this situation?”  Here are some good strategies that investors can use in response.

Learn Bonds: – Bernanke’s testimony and the Fed’s exit strategy. – On Tuesday, when Bernanke was asked about selling a big portion of the securities the Fed has purchased in recent years in order to wind down the Fed’s balance sheet, the Chairman responded, “We don’t anticipate having to do that.”  He continued, “We could exit without ever selling.” So what are the chances that this is the strategy that will play out?

Learn Bonds: – Simple income strategy for non investors. – Charles Margolis shows you how to develop a simple income strategy using muni and Treasury bond funds. This is a simple strategy aimed at non investors with limited funds who currently don’t have any investment income at all.

Learn Bonds: – Another Aaa rating bites the dust – who’s left? – On Friday, Moody’s downgraded the United Kingdom’s government bond ratings by one notch to Aa1 from Aaa.  The ratings outlook, which was changed to negative in February 2012, is now once again stable.  With the recent downgrade of the U.K., readers might be wondering which sovereigns with the coveted Aaa designation remain?

Learn Bonds: – The de-leveraging supercycle & the lack of quality assets. – Conventional wisdom is that the market is being flooded with new bond issues.  In 2012, $6.98 trillion in new bonds were issued in the United States. While the market is doing a good job absorbing the new issuance for now, it’s only a matter of time before there is an imbalance between supply and demand. Jim Keegan would not agree. In fact, he thinks there is a shortage of quality assets available to fixed income investors.

PIMCO: – Bill Gross: Investment outlook– PIMCO cautions “rational temperance”: be bullish if you want, but lower return expectations on all asset classes.

Point Bonita: – Are individual bonds better than a mutual fund? – You’ll hear passionate advocates of buying individual bonds instead of a bond fund in your investment accounts. There are some great advantages, but they aren’t best for everyone’s situation. This 2.5 minute video comparison might help to guide your decision.

Financial Ramblings: – Buying savings bonds with your tax refund. – Michael from Financial Ramblings shows you how to buy additional Series I Savings Bonds with your tax refund.

CFA Institute: – Convexity Hedging: What is it, and why does it matter? – David Schawel takes a high-level look at what convexity hedging is and how it affects the US Treasurys market.

About.com: – Worried about Bonds? We have you covered. – If you’re beginning to worry about the safety of your investments following the recent flood of coverage on the “bond market bubble,” you may be wondering just what issues have so many people predicting doom and gloom for the market. If that’s the case, these three articles can shed some light on what has the experts so concerned.

SoberLook: – Leveraged loan market on fire. – Sub-investment-grade loans continue to perform well, driven by demand for floating rate product. As market participants rotate out of HY bonds, which have been frothy for some time, and into loans, we are seeing the beginnings of another QE-driven market frenzy. Covenant-light transactions are a large part of the primary market recently.

ETF Trends: – TIPS ETFs: Watch out if rates rise faster than inflation. – Many individual investors purchase TIPS in the belief that they are as safe as safe can be: The full faith and credit of the US government stands behind them, and their returns adjust to keep up with inflation. But here’s a fact that some may find surprising, if interest rates move up faster than consumer prices do, their TIPS investments can turn around and bite them.

Bloomberg: – PIMCO joins Invesco finding value in TIPS with low CPI. – Pacific Investment Management Co. and Invesco Ltd. say growing central-bank tolerance of inflation means securities with interest or principal tied to consumer prices are the ones to own.

MSRB: – MSRB publishes 2012 municipal bond fact book. – The Municipal Securities Rulemaking Board (MSRB) has published the 2012 edition of its fact book, an online sourcebook that analyzes trading data and other statistics for the $3.7 trillion municipal bond market.

Bloomberg: – Gross says corporate bonds irrationally priced as risks rise. – Pacific Investment Management Co.’s Bill Gross, manager of the world’s biggest bond fund, said asset-price irrationality is rising after years of record low benchmark interest rates by the Federal Reserve.

Bloomberg: – Wall Street junk kings selling debt poised to lose value. – Wall Street junk-bond underwriters, selling debt at a record pace after the securities returned 19 percent last year, say it’s obvious that prices will drop when interest rates rise. So don’t blame the banks.

Forbes: – Why you should you sell stocks and buy Treasurys. – Interview with Gary Shilling, where he talks about the state of the economy and what the future holds, with some interesting advice about “risk on” high yield debt and “risk off” Treasurys. “Never buy Treasurys for yield.”

AllianceBernstein: – We expect high-yield defaults to remain low. – High-yield bond defaults are historically low today, even for troubled companies. Despite the worries we hear in some corners about looming high-yield defaults, we think default rates will stay low for at least the next few years.

BCA Research: – US Corporate Bonds: Move down in quality. – We are anticipating a fairly significant bear-steepening in the Treasury curve.  Historically, in such an environment, it proved beneficial to move down in credit quality in the corporate bond market. In short, the balance of risks supports moving down in credit quality in the corporate bond market.

Morningstar: – Municipal-bond outlook. – Municipal bonds had another good year in 2012 as interest rates continued to fall and, despite making a number of high profile headlines, municipal bankruptcies were contained. With interest rates on municipal bonds at 45-year lows, what can investors expect in 2013?

About.com: – Worried about Bonds? We have you covered. – If you’re beginning to worry about the safety of your investments following the recent flood of coverage on the “bond market bubble,” you may be wondering just what issues have so many people predicting doom and gloom for the market. If that’s the case, these three articles can shed some light on what has the experts so concerned.

SF Gate: – Bernanke signals continued support for low rates. – Ben Bernanke sent a message Tuesday to Congress: The Federal Reserve’s low-interest-rate policies are giving crucial support to an economy still burdened by high unemployment. Economists said Bernanke made clear the Fed has no plans to scale back its pace of bond purchases.

Anthony Valeri: – Muni-Treasury yield ratios still low end of recent range. – Muni-Treasury yield ratios still low end of recent range. Valuations may not be cheap enough to entice more demand.

ETF Database: – What’s in your emerging market bond ETF? – While targeted emerging country bond ETFs can be a great holding for investors who are well versed in the political and economic landscape of the country, those looking to break into the fourteen existing emerging market bonds should take time to make sure their “broad exposure” ETF is really that.

Barron’s: – Junk bonds could See 1.4% annual returns through 2016. – Longtime junk bond guru Martin Fridson, who had grown pretty bearish on the asset class during its recent run-up, sounds another warning this week: junk bonds could return just 1.4% a year through 2016, and “something extraordinary would have to happen” for the high yield market to earn its average coupon (currently 5.84%, down from 6.11% at the end of 2012) over the next four years.

Bloomberg: – Fed faces explaining billion-dollar losses in QE exit stress. – Federal Reserve Chairman Ben S. Bernanke’s efforts to rescue the economy could result in more than a half trillion dollars of paper losses on the central bank’s books if interest rates rise abruptly from recent levels. That sum is the difference between the value of securities in the Fed’s portfolio on Dec. 31 and what they may fetch in three years.

Morningstar: – Seeking a fixed income fix. – While not without risk, corporate credit actually looks to be in fairly good shape, according to Eric Takaha who, as senior vice president and portfolio manager of Franklin Strategic Income Fund spends a good deal of time analyzing the space.

ETF Trends: – PIMCO Total Return ETF trounces benchmark, mutual fund in first year. – PIMCO Total Return ETF (NYSEArca: BOND) is celebrating its first birthday with one-year returns that have crushed its benchmark and the mutual-fund version which is also managed by Bill Gross.

Invest With an Edge: – The successful failure of PIMCO total return ETF.  – Today is the one-year anniversary of the launch of the PIMCO Total Return ETF (BOND). Today, BOND has $4.3 billion in assets, a one-year total return of 11.3%, and most analysts gushing over it every chance they get. In short, the PIMCO Total Return ETF (BOND) has been a raging success in all areas except one – it failed its “Prime Directive” of being the ETF version of the PIMCO Total Return Bond Fund.

Cate Long: – Massachusetts creates the gold standard for municipal bond disclosure.– The Commonwealth of Massachusetts has poured a lot of effort and creativity into figuring out how to keep its bond investors up to date with financial data. Today it consolidates lots of municipal bond data in one place. It’s a muniland “one stop shop,” and I hope it inspires other states and municipalities to improve their games on disclosure.

Reuters: – US municipal bond trading dipped in 2012. – Trading in U.S. municipal bonds dipped last year as appetite for revenue bonds faded for a second year in a row, according to data released on Thursday by the Municipal Securities Rulemaking Board.

 

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David Waring

David Waring was the founder of LearnBonds.com and has been a major contributor to the extensive library of investing news and information available on the site. Until the launch of Learnbonds.com in late 2011 there was no single site on the internet catering exclusively to the individual bond investor. This was true even though more individuals own stocks than bonds. Learn Bonds was launched to fill that gap.