Pimco’s Kiesel Optimistic About U.S. Growth and Today’s Other Top Stories

Pimco’s Mark Kiesel, chief investment officer of global credit, said today that fixed-income securities globally look attractive on a stronger U.S. economy, accommodative central bank policies and lower oil prices.

“Within credit markets, U.S., European and Asian investment-grade bonds offer opportunities in 2015 as do riskier assets including high-yield debt, bank loans, emerging market credit and municipal bonds” Kiesel wrote in a report published on Pimco’s website earlier today.

The manager of the world’s largest bond mutual fund expects the U.S. will expand at about a 3 percent rate next year. That pace won’t be swift enough to warrant aggressive interest rate increases by the central bank, which would curb bondholder returns.

“With modest rate rises anticipated next year, higher yields would improve demand from yield-driven investors like insurance companies and pension funds, further supporting investment-grade credit spreads,” Kiesel says.

While returns in high-yield debt have been on a “roller coaster” ride this year, those companies have increased earnings and pushed out maturities and performance will improve next year, he said.

Even with lower commodity prices hurting the debt of emerging markets, those risks are offset by attractive valuations, Kiesel wrote. The credit quality of investment-grade municipal bonds is improving as states increase payrolls and add to reserves.


Todays Other Top Stories

Learn Bonds

Learn Bonds: – Bond funds are holding cash: Should investors follow suit? – The Fed is expected to increase rates in 2015 and that might result in both increased volatility in the bond markets, along with plenty of uncertainty. Managers of bond funds who are preparing for these changes now prefer to hold cash. Interestingly, it is also a trend that’s been in place since the financial crisis. The question is should you follow suit?


Municipal Bonds

Columbia Management: – Why pay a premium for municipal bonds? – Although paying a premium for a bond at the time of the purchase may seem counter-intuitive, premium bonds can be advantageous due to the high coupon rates and lower durations they provide relative to discount bonds.

Bloomberg: – Kansas pension-bond plan revived amid budget strain. Governor Sam Brownback’s plan to divert pension cash to plug a budget deficit has Kansas Treasurer Ron Estes recommending a fiscal tool the state hasn’t used in a decade — selling bonds to fund its retirement plan.

Cumberland Advisors: – Municipals finish a solid year. – As we cruise into the last two weeks of the year, it is instructive to see the sea change in the municipal bond market in 2014. The beginning of 2014 saw long tax-free bonds of the highest grade at over 4% and many bonds in the AA and A category at well over 5%. As we finish the year, the AAA scale for 30-year paper is at a 2.90, and most AA and A-rated longer-term bonds are in the mid to high 3% levels.


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 edge higher. – (Subscription) Treasury bonds edged higher on Friday as the biggest two-day selloff in more than a year attracted fresh buyers.


High Yield Bonds

Forbes: – Looking ahead to the year that interest rates will finally rise. – Ultra low fixed income yields favor equities over fixed income. Despite today’s high valuations, the strong U.S. equity bull market continues through mid-2015.

Michael T. Schneider: – Junk bonds are going to tell us where the stock market is heading in 2015. – Do you want to know if the stock market is going to crash next year? Just keep an eye on junk bonds.

Market Realist: – Plunging oil causes turmoil in high yield bond markets. – There is one unexpected loser emerging from the plunging energy price environment. A lot of turmoil in high yield bond markets is happening as a result of the steep slide in oil prices.


Emerging Markets

Businessweek: – The markets are predicting a Venezuelan default. – President Nicolás Maduro says there’s a foreign conspiracy at work against Venezuela. In a Dec. 13 speech on state television, he lashed out at the international credit-rating companies that assigned junk ratings to his country’s foreign currency bonds, accusing them of orchestrating “a vulgar, immoral financial blockade.”

Morningstar: – Frontier markets not as risky as you think. – Each frontier-markets country tends to have more idiosyncratic risks, meaning individual equity markets historically exhibit low correlations with one another.

Reuters: – Emerging markets sell-off may provide opportunity. – Emerging market bonds fell victim to indiscriminate selling this week, as weak oil prices and low liquidity sent investors running for cover ahead of potential redemptions.


Green Bonds

Financial Advisor: – Green bonds sell big in 2014 as finance bids to help climate. – A “green” bond market has taken root this year, with municipalities and corporations issuing new environmentally-focused bonds and money managers jumping in to buy them.


Investment Strategy

Automated Trader: – 2015 will be a year of ‘tempered optimism’ says Investec Wealth & Investment. – 2015 is set to be a year of ‘tempered optimism’, according to Vision 20151, a new report on key trends and market developments for the year ahead from Investec Wealth & Investment.

The Street: – The five stages of pullback selling. – There are five stages of selling during a severe pullback like the one we have just witnessed in oil and energy-related stocks.

WSJ: – What ‘Petro Panic’? How investors should adjust their portfolios. – The sharp and swift recovery shows the importance of not reacting to every blip in the market. Investors should use this year-end turmoil as a test of their own intestinal fortitude and an opportunity to re-examine their portfolios. A few gradual steps, such as tweaking your exposure to stocks, can lower your risk and raise your odds of being able to reach your goals.


Bond Market

FT: – Investors bulk buy bond default insurance options. – Big investors have been buying hundreds of billions of dollars worth of exotic credit derivatives to protect themselves against the possibility that growing numbers of corporate bond issuers will default.

PIMCO: – Outlook for the global credit markets in 2015. – PIMCO remains constructive on the outlook for the global credit markets in the coming year given the combination of fundamentals, technicals, valuations and global central bank policies. Investors will need, however, significant global credit expertise in order to pick potential winners and losers given likely changes in global central bank policies and growth dynamics, continued energy price volatility and the potential for more shareholder-friendly actions by companies.


Bond Funds

Zacks: – 5 Diversified bond funds to add to your portfolio. – 5 top rated diversified bond mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect these mutual funds to outperform their peers in the future. To view the Zacks Rank and past performance of all diversified bond funds.


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