PIMCO Emerging Bond Fund Losses and Today’s Other Top Stories

The problems at PIMCO continue to pile up with its emerging-market bond fund suffering record outflows due to losses incurred by a heavy bet on Russian-debt.

Data compiled by Bloomberg shows that PIMCO’s Emerging Market Bond Fund owns $803 million in Russian corporate and sovereign bonds as of September, which is equivalent to 21% of its total assets. According to Morningstar, PIMCO Emerging Market Bond Fund has lost 9% this month.

The fund had previously been a star performer for the bond giant, ranking in the top 5% of the 106 emerging market bond funds, back in June according to Morningstar data.

The Wall Street Journal reports that the performance of the fund benefited from its investment in Russian debt. However, its performance tumbled during the last quarters due to the negative impact of declining oil prices and the global sanctions that hit Russia’s economy.

This month its ranking fell to the 62nd percentile as its losses continue to mount. The independent investment research firm said the fund suffered $3.3 billion in net outflows by the end of November.


Todays Other Top Stories

Learn Bonds

Learn Bonds: – The current term structure of interest rates. – Over the past year, a lot of attention has been paid to the decline in longer-term bonds. Today, I would like to look at what has happened to the term structure of interest rates during this period of decline.


Municipal Bonds

The Experts: – The case for short-term muni bonds. – Short-term municipal bonds are typically less volatile than longer-term bonds, especially during times of rising interest rates. With the end of the Federal Reserve’s quantitative easing (QE) program in 2014, investors are now nervously awaiting the first interest-rate hike. Typically, rising interest rates affect both yields and prices, but by sticking to short-term municipal bonds, the impact is not quite as dramatic as one might imagine.

Advantage Voice: – The crude oil sell-off and municipal bonds, – The rapid decline in oil prices since mid summer has been driven by a confluence of excess supply and geopolitical factors. While much of the investment world’s attention has been on the disruptions sinking oil prices have had on energy sector stocks, currencies, and global politics, investors in municipal bonds should also take note, as many U.S. state and local budgets depend on oil exploration and production revenues.

Reuters: – U.S. stellar municipal bond returns set to dim in 2015. –  U.S. municipal bonds’ stellar 9 percent performance so far this year may not continue in 2015 as interest rates are set to rise and dampen returns, analysts and fund managers said.


Treasury Bonds

Morningstar: – Treasury bonds post biggest one-day selloff in three months. – Treasury bonds posted the biggest one-day selloff in three months on Wednesday as comments from Federal Reserve Chairwoman Janet Yellen renewed some concerns that the central bank may raise interest rates sooner than many investors anticipate.

WSJ: – U.S. Government bonds sell off as Fed reassures markets. – (Subscription) Treasury bonds pulled back on Thursday for a second session as the Federal Reserve’s stance of being patient in raising interest rates encouraged investors to seek out risk.


High Yield Bonds

Bloomberg: – Junk-bond risk gauge extends rally on Fed rate pledge. – Investors embraced junk debt for the first time in more than a week with gains in energy prices boosting the sector as the Federal Reserve pledged to show patience with its timing of raising interest rates.

Market Realist: – Why you should avoid high-yield bonds in the energy sector. – Investors have been stretching too far for income for yield and ignoring risk. While there are few bargains within fixed income, I continue to like those parts of the market that offer some relative value, including tax-exempt bonds and mortgage-backed securities.

ETF Trends: – Time to jump for junk bond ETFs? Maybe. – It has become a prominent theme in the U.S. high-yield bond market this year. That being the vulnerability of junk bonds to plunging oil prices.

FT: – High drama looms for high-yield bonds. – (Subscription) The highest profile casualty of collapsing oil prices has been Russia, which this week descended into a full blown currency crisis. Less noticed have been the effects ricocheting through the $2tn global market for riskier corporate bonds.


Emerging Markets

Reuters: – Pimco’s emerging market bond funds post record 2014 outflow. – Pimco posted a record total outflow of $5.8 billion from its emerging market funds in the first 11 months of 2014, according to Morningstar data released on Wednesday.

Telegraph: – Fed calls time on $5.7 trillion of emerging market dollar debt. – World finance is rotating on its axis. The stronger the US boom, the worse it will be for those countries on the wrong side of the dollar.

Deal Book: – A wager on emerging markets that seems poorly timed. – Earlier this fall, William H. Gross, in one of his last moves as portfolio manager of Pimco’s $200 billion flagship Total Return fund, made a quick change to his investor prospectus.


Catastrophe Bonds

Artemis: – Strong secondary cat bond trading in November due to impending maturities. – The month of November saw strong trading activity in the secondary market for insurance-linked securities (ILS) and catastrophe bonds as investors looked to capitalise on yields from short-dated cat bond notes which are soon to mature.


Investment Strategy

Financial Post: – Why it’s time to refocus on high-quality bonds. – Fixed-income investors need to refocus on quality, liquid assets and reevaluate their hefty exposure to high-yield corporate bonds, say strategists on both sides of the border.

Barron’s: – 3 things every investor needs to know about income investing. – (Subscription) Opportunities in financial markets have changed materially since the days when bond “ladders,” certificates of deposit (CDs) or municipal bonds provided the bulk of the sustainable income stream for the elderly and savers of this country. With that in mind here’s three things every investor needs to know about fixed income in 2014.

US News: – Before interest rates rise, revisit your bond holdings. – higher interest rates, whenever they come to fruition, could impact the performance of your investments, and your bonds in particular, in a number of ways. Here’s why.

Professional Pensions: – Schemes urged to prepare for more volatility in fixed income. – Pension schemes are being urged to brace themselves for more volatility in the fixed income markets next year and to expect smaller returns from government bonds.


Bond Market

FT: – U.S. bonds and shares send conflicting signals. – (Subscription) Low yields on Treasuries and a strong performance by equities cloud the economic outlook.

Pragmatic Capitalism: – Are bonds really less risky than equities? – It’s practically an investing axiom that government bonds are much less volatile than equities. But that depends on how you look at it. In fact, our research suggests that income streams from stocks are actually much less volatile than those of government bonds.

Pragmatic Capitalism: – Are we witnessing a melt-up in long-term bonds? – Since the financial crisis, investors are constantly on edge that we’ll see another melt-down in the stock market. On the other hand, there are investors such as Jeremy Grantham of GMO, that have been predicting the opposite — a melt-up in stocks before we see an eventual crash as investors notoriously take things too far. But what if investors are looking for a melt-up in the wrong place? What if the real melt-up is already occurring in one the most boring asset class of all — long-term U.S. treasuries?


Bond Funds

ETF.com: – Time for currency-hedged int’l bond ETFs. – This article is part of a regular series of thought leadership pieces from some of the more influential ETF asset managers in the money management industry. Today’s article is by Robert Leggett, senior portfolio advisor at Akron, Ohio-based ValMark Advisers, which markets the “TOPS” brand of asset allocation models.

Morningstar: – Nearing the end of a decent year in CEFs. – Falling oil prices buffet some CEFs, but many have turned out strong returns so far this year.

Morningstar: – 5 high yielding funds. – Looking for new investment ideas? These open-end funds all pay at least 5% a year and could fit into a well diversified portfolio.


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