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Draghi Hints at Full Scale Bond Buying and Today’s Other Top Stories

Draghi
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Mario Draghi has delivered his strongest hint yet that he believes more monetary easing could help spur the eurozone’s recovery, in a dovish set of remarks that will fuel investors’ hopes that the European Central Bank is nearing the launch of a full-scale sovereign bond buying programme.

Mr Draghi told a conference in Frankfurt that the central bank would “do what we must to raise inflation and inflation expectations as fast as possible, as our price stability mandate requires of us.”

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The view that asset purchases would boost credit creation and help households and businesses in a region battered by weak confidence and low investment is a clear signal that the ECB chief believes more action is needed.

Mr Draghi also indicated the ECB could act as soon as early next year, saying policy makers needed to bring inflation back to target “without delay”.

The euro fell sharply against the dollar in response to the remarks, dropping 0.8 per cent to $1.2437, and 1 per cent against the Japanese yen. European shares rose, with the FTSE Eurofirst 1 per cent higher and German equities up 1.5 per cent.

Central bankers, including the ECB’s president, have warned that monetary policy measures alone will leave the currency area short of a self-sustaining recovery unless politicians reform their economies and boost fiscal spending.

 

Todays Other Top Stories

Learn Bonds

Learn Bonds: – Treasuries are biggest losing bonds. – For the past month, Treasuries were the poorest performing developed market bonds, delivering gains to investors internationally based only on a dollar rally.

 

Municipal Bonds

Reuters: – Soaring high-yield muni funds could fall in 2015: Eaton Vance. – High-yield U.S. municipal bond funds, which saw runaway returns for most of this year, could spiral downward in 2015 if investors become spooked anew by negative headlines out of Puerto Rico, a senior portfolio advisor at Eaton Vance said on Tuesday.

Bloomberg: – California set to take in $2 billion more revenue than forecast. – Higher taxes and an improving economy will boost California’s revenue $2 billion above the income Governor Jerry Brown projected in the budget he signed in June, the state’s fiscal analyst said.

MarketWatch: – Value opportunities in today’s Municipal bond markets can be unearthed with research. – Over the past year, municipal bond markets have experienced resurgences that have made them increasingly attractive to a broad range of investors.  Yet, municipal fixed-income bonds can be complex, and analyzing and finding value among the many securities available can challenge even experienced financial managers.

MuniNetGuide: – Financially distressed cities: Should unfunded pension obligations impair funding of essential services? – The financial health of some municipalities across the nation that are in financial distress is being threatened by unfunded public employee pension obligations that are not affordable and sustainable.

Bloomberg: – Puerto Rico rally at risk with rising debt expenses. – The biggest rally in Puerto Rico debt in five years is at risk as the struggling U.S. territory piles up debt costs and moves toward a historic restructuring of its electric utility.

 

Bond Market

ValueWalk: – Overseas influences on U.S. bond prices. – Demand from overseas investors once again helped the bond market shrug off stronger economic data and weak Treasury auction demand.

Business Insider: – How stocks and junk bonds went their separate ways. – Until the last few months, U.S. high-yield bonds had been one of the best-performing asset classes in the global fixed income markets.

Brian Gilmartin: – Bond market update: Municipals outperformed corporates handily in 2014. – We’ve had a tougher year in our balanced and fixed income accounts, mainly because like the 99% of the other money managers in the universe of money management, we thought interest rates would rise again this year, (sentiment should have been a huge tell at this time last year) and they didn’t.

 

Treasury Bonds

FT Alphaville: – The liquidity crisis that awaits. – (Subscription) Fears are growing that the next crisis, if it should manifest, won’t come from any of the areas that spawned the 2008 crisis. To the contrary, it will emerge from areas we’ve not really had to worry about to date.

WSJ: – U.S. Government bonds retreat, but losses tempered. – (Subscription) Treasury bonds pulled back Friday as the latest signals from central banks in China and the eurozone supporting the economy encouraged investors to buy riskier assets.

Reuters: – Prices inch higher after comments by ECB’s Draghi. U.S. Treasury long bond prices edged higher on Friday in line with gains in euro zone debt after European Central Bank President Mario Draghi said the central bank is prepared to do more to stimulate a sluggish euro zone economy.

 

Investment Grade

ValueWalk: – Corporate bonds: I had my cake, until I ate it. – After 30 years of declining interest rates, bond investors are beginning to worry that rates will go higher—especially after the events of May 2013.

Income Investing: – Why do so many want Alibaba bonds? – Why are so many investors clamoring the get in on Alibaba Group’s first ever bond sale?

 

High Yield Bonds

FT: – U.S. junk bonds lose some shine. – (Subscription) Investors pulled out of junk bonds for the first time in over a month. Last week mutual funds and exchange traded funds investing in the securities saw $281m in outflows in the week through Wednesday, according to Lipper.

Market Realist: – How long will the search for yield last? – How long will low rates – and the accompanying search for yield – continue?

Bloomberg: – Junk bonds whipsawed as trading drought rattles investors. – Junk bond investors have a bad case of the jitters. Every bit of bad news is whipsawing prices, with bonds tumbling as much as 50 percent in a single day.

 

Emerging Markets

Businessweek: – McDonald’s beef supplier hit by collateral bond damage. – Not even Marfrig Global Foods SA, the McDonald’s Corp. hamburger meat supplier that’s won upgrades from two ratings companies in the past five weeks, could overcome investors’ growing discontent over Brazil.

 

Investment Strategy

WSJ: – A look at two different approaches to retirement finance: “safety first” v. “rolling the dice. – (Subscription) “There are essentially these two completely different schools of thought about retirement income. Those who can’t stomach a one-in-10 chance of subsisting solely on Social Security belong to the “safety first” school. Those comfortable with a roll of the dice fall into to the “probability” camp.

Morningstar: – Top fund picks for risk-takers. – A compact list of stock, bond, and allocation offerings that have been risky but worth it.

Investopedia: – Assets for your retirement portfolio. – Investors often spend decades working and saving to build a nest egg for retirement. During that time, their primary investment goal is to see their assets grow. When retirement finally arrives, the primary investment goal often changes from seeking to grow assets to using those assets to generate income. The investments used to pursue this new goal need to change accordingly.

Market Realist: – Why you should avoid speculative fixed income asset classes. – In this environment, many investors are still determined to wait out the bond market, believing that rates will eventually normalize and provide investors with a risk-free 5% yield, though this isn’t likely to happen anytime soon. At the same time, others are overreaching for yield by entering ever more speculative fixed income asset classes, such as Greek bonds and leveraged loans, where the risks may not be worth the potential returns.

Russell Investments: – Rate rises aren’t all bad for long-term bond investors. – The focus on the short-term impact of a rate rise is causing anxiety for many bond investors. After all, the general mechanics of bonds suggest that the value of bonds an investor currently holds will drop when interest rates rise. With interest rates at historic lows today, most market observers expect rates to rise at some point. That is a painful prospect for any investor holding bonds as part of a portfolio diversification strategy.

ETF Daily News: – Vanguard ETFs for steady retirement income. – When most investors begin planning for a steady income stream in retirement, they tend to gravitate towards fixed-income as a predominant asset class. The low volatility and reliable dividends from bonds offer an attractive combination for replacing career earnings. However, it’s important to remember that these assets can be susceptible to swings in price due to interest rate fluctuations and credit cycles.

 

Bond Funds

S&P Capital IQ: – Big withdrawals from high yield bond ETFs wipe out small mutual fund inflows. – Retail-cash flows turned negative for the first time in five weeks, with a net $281 million redemption in the week ended Nov. 19, according to Lipper. However, that figure is tied to a large withdrawal of $349 million from exchange-traded funds wiping out a small inflow of $68 million to mutual funds.

Business Insider: – How rising interest rates could affect your portfolio. – The days of record low interest rates may finally be nearing an end. Most economists predict (and the Fed has indicated) that an increase in short-term interest rates is all but certain for 2015.

 

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