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The Return of The Bond King and Today’s Other Top Stories

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Bill Gross has had to endure a torrid few months. When the Fed first broached the subject of tapering back in May, investors began abandoning bonds on the threat of higher interest rates. And PIMCO took the brunt of it.

Outflows at PIMCO’s flagship Total Return fund, the largest mutual fund in the world, were $9.6 billion in June alone. — The largest monthly outflow since Morningstar began tracking the fund in 1993. The outflows represented nearly 3.4% of the fund’s total assets at the beginning of the June, according to Morningstar, leaving the fund with $268 billion under management.

PIMCO Total Return, which has a reputation for outperforming a strong bond market, dropped dropped 3.7% in the second quarter, worse than 95% of similar bond funds tracked by Morningstar.

The dismal performance led some to say that the “bond king” Bill Gross, had relinquished his crown. Placing it firmly on the head of Gross’s California neighbour, Jeff Gundlach.

But that was then and this is now, a month is a long time in politics and an even longer time in finance. Last month’s news that the Fed was holding off from tapering back the level of bond purchases it makes as part of its monetary stimulus program, has caused bonds to mount a recovery.

And who should be at the head of that recovery, PIMCO. Preliminary data from Morningstar showed Tuesday, that PIMCO Total Return Fund, the world’s largest mutual fund, rose 1.8% in September.

The return marks the best monthly performance for the fund since January 2012. The fund’s latest monthly performance also beat 98% of peers for the month, including Jeff Gundlach’s DoubleLine Total Return Bond Fund, which rose 1.2% in September, beating 79% of peers, according to preliminary data from Morningstar.

Gundlach’s DoubleLine Total Return Bond Fund is still up 0.3% for the year, outperforming  PIMCO’s Total Return which is down 1.9%. But it shows that Gross isn’t about to relinquish his crown without a fight.

 

Todays Other Top Stories

 

Municipal Bonds

Reuters: – Detroit’s expected bond default seen raising constitutional issue. – Detroit is poised to default on about $641 million of its general obligation bonds on Tuesday, an event that is likely to spur a legal challenge over Detroit’s decision to take tax money earmarked for bond payments and apply it instead to city needs.

Bloomberg: – Shutdown seen imperiling funds for mass-Transit munis. – Municipal bonds backed by federal mass-transit aid are the most vulnerable to a U.S. government shutdown, according to Moody’s Investors Service.

Reuters: – U.S. debt ceiling impasse would hurt muni issuers -Moody’s. – Funding for hospitals, states and other issuers in the $3.7 trillion U.S. municipal bond market would be jeopardized if Congress does not raise the federal debt limit by the Oct. 17 deadline, Moody’s Investors Service said on Monday.

MarketWatch: – 3 yield plays immune to Fed’s ‘taper tease’. – The Federal Reserve’s eventual withdrawal as a big bond customer, and the expected price drop and interest-rate rise — may finally bring the demise of a decades-long bond bull market that has used up nine lives and then some.

Forbes: – It’s not the time to run from munis. – Yes, following two years of double digits returns, muni bonds have unfortunately encountered some speed bumps in 2013.

Bloomberg: Best rally seen defying October’s history of losses. – The $3.7 trillion municipal-bond market is poised to extend its biggest rally in 21 months as slowing withdrawals from mutual funds and dwindling supply defy October’s history as the worst period for total returns.

 

Education

Learn Bonds: – Income Investing – Looking beyond stocks and bonds. – Financial Lexicon wraps up his series on income investing by looking beyond common stocks and traditional bonds, and discussing other income opportunities investors may want to consider for their portfolios.

Yahoo Finance: – Understanding the $38 trillion bond market in 5 easy steps. – When it comes to the holy trinity of investing, (stocks, bonds and cash) it seems the rules and nuances of investing in the bond market often are the most baffling for newcomers. For this edition of Investing 101 we are going to demystify the bond market and have put together five quick tips to help you get your head around buying bonds.

 

Treasury Bonds

Bloomberg: – Treasuries fall amid bets Government shutdown won’t last. – Treasuries fell for the first time in three days on speculation a shutdown of the U.S. federal government may end soon enough for lawmakers to work on extending the debt limit, minimizing damage to the economy.

 

Corporate Bonds

WSJ: – Investment-grade corporate bonds log record month. – Buoyed by the largest corporate-bond deal ever—a $49 billion sale by Verizon Communications Inc. Highly rated companies sold more debt in September than any other month in the 18 years records have been kept.

 

High-Yield

BusinessWeek: – Trading in junk bonds declines most since 2008. – Junk-bond trading in the U.S. has fallen the most since 2008 as the Federal Reserve keeps investors guessing on when it will slow bond purchases that bolstered demand for the debt.

 

Emerging Markets

WSJ:  – Shutting down emerging markets. – American exceptionalism remains alive and well in the bond market at least: When it looks like the U.S. government might shut down, its cost of borrowing actually falls. Officials in emerging markets can only look on in envy. They have more to fear from furloughs in Washington than Americans do.

 

Bond Funds

Research Puzzle Pix: – Bond investors taking alternative routes to income may be surprised at where they end up. – If bond investors are worried about rising rates, they may want to spread their bets.  But should equities, high yield bonds, and other risk assets take it on the chin, some of the more staid bond funds might not look so bad in comparison to their souped-up cousins.

About.com: – 2013 third quarter bond market returns and performance review. – How did the bond market perform in the third quarter? The answer to this question is simply, “It depends on where you were invested.” While certain areas of the market worked well and recovered from their second-quarter weakness – other market segments remained weak. Most notable among these were long-term U.S. Treasuries and municipal bonds.

Financial Lexicon: – The battle for bond investors’ hearts – Bond funds Vs. Individual bonds. – Financial Lexicon grapples with the question most investors are asking right now. When buying bonds, should you go with funds or individual bonds?

WSJ: – Brazilian magnate’s woes may jolt bond funds. – Some of the world’s biggest bond-fund managers, including Pacific Investment Management Co. and BlackRock Inc., are bracing for a new phase in the rapid decline of Brazilian businessman Eike Batista’s empire: default.

Adam Aloisi: – The most important consideration in how you buy bonds. – What is the most important consideration when one pits funds versus individual issues in a bond allocation strategy?

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