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PIMCO can’t seem to stop the rot, with investors continuing to exit the bond giant, pulling another $4.5bn from the fund’s flagship Total Return Fund in June, the 14th straight monthly redemption, according to data released by Morningstar.
PIMCO’s Total Return Fund, managed by Bill Gross, PIMCO’s chief investment officer has endured outflows since the Fed hinted at ending its bond buying program back in May 2013. The problem was accentuated in January when PIMCO’s high profile Chief Executive Mohamed El-Erian unexpectedly quit the firm amid rumours of animosity with Gross.
Assets in Total Return (TLT) shrank to $225bn at the end of June, according to Morningstar, which tracks flow data.
What must be concerning for Gross is the outflows came despite a strong performance last month. The fund returned 0.37% vs. the benchmark Barclays Aggregate Bond Index (AGG) return of 0.05% in June.
With the ETF equivalent BOND also outperforming the AGG during June, and is doing better by 120 basis points YTD.
Todays Other Top Stories
Reuters: – Puerto Rico biggest muni issuer, BofA top underwriter so far in 2014. – Fiscally troubled Puerto Rico was the biggest issuer of bonds in the U.S. municipal market in the first half of 2014 with a single $3.5 billion bond sale in March, according to Thomson Reuters data on Tuesday.
Bond Buyer: – July 1 – A date for the muni market history books. – As many state and local governments across the country begin their July 1 fiscal year, a new federal law going into effect is of particular interest to municipal governments that issue bonds. The new law defines the scope of activities of municipal advisory professionals and establishes new requirements for those that provide advice on matters of public finance.
MoneyNews: – Moody’s pushes Puerto Rico debt deeper into junk status. – Ratings company Moody’s on Tuesday slashed Puerto Rico’s debt rating by three notches into even deeper junk status after the U.S. territory passed a debt-restructuring law.
Stock Market Watch: – Detroit and other municipal bond markets you should know about. – The previous governor of Michigan should have placed Detroit in bankruptcy years ago, according to Reuters financial blogger Cate Long.
Occupy Theory: – Municipal bonds advantages and disadvantages. – Municipal bonds represent an attractive investment for people looking for assets that give tax-advantaged income. Prior to investing in such bonds, it is great to first explore its pros and cons of doing so to ensure that you are making the most informed investment decision. But what is a municipal bond?
Banking Sense: – How a 10-year Treasury bond works. – Bonds are a fixed income security offering an investor a specified return, during specific intervals, with a full repayment of the principal once it matures. A purchased bond lends money to the issuer, such as a municipality, corporation or the U.S. Government. The U.S. Treasury issues bonds to raise money to fund operations and pay U.S. Government debt. The most watched and invested bond is the popular 10-year Treasury bond.
Advantage Voice: – Corporate and municipal bonds steal the show so far in 2014. – While many in the media like to cite the drop in Treasury yields as the big surprise thus far in 2014, the bigger stories are the strong returns from the corporate and municipal markets. But the year-to-date and the second-quarter returns for the Treasury market and its cousin, the agency market, are significantly less than the other domestic markets.
MoneyNews: – PIMCO sees rate increase as Treasurys’ 2014 rally ebbed in June. – Pacific Investment Management Co. Chief Economist Paul McCulley said the Federal Reserve will raise interest rates in about a year as Treasuries ended June with a loss.
CNBC: – U.S. bonds rise, yield curve steepens as data shows big jump in jobs. – U.S. Treasury bonds rose and the yield curve steepened on Wednesday after the ADP jobs report, which is viewed as an indicator of the all-important non-farm payrolls, showed a large gain in private payrolls last month.
Investment Grade Bonds
Businessweek: – Oracle to Goldman lead record first half bond offerings. – Corporate bond sales worldwide capped the busiest first half of a year on record as borrowers take advantage of investor demand stoked by central banks’ unprecedented stimulus measures.
ETF Guide: – Corporate debt skyrockets to $9.6 trillion. – How healthy are corporate balance sheets? It depends who you ask. One news outlet said that U.S. firms are hoarding a record $1.6 trillion in cash led by Apple, Google, and Microsoft. Shockingly, that same report made no mention of corporate debt levels, which are also at all-time records.
WSJ: – Highly rated corporate debt sales set record in first half. – Megadeals from Apple Inc. and from Oracle Corp., which just completed a $10 billion bond sale on Monday, helped push the number of debt sales by highly rated companies in the U.S. to record levels in the first half of the year.
High Yield Bonds
BNK: – HYD crowded with sellers. – In trading on Tuesday, shares of the High-Yield Municipal Index ETF (Symbol: HYD) entered into oversold territory, changing hands as low as $29.91 per share. We define oversold territory using the Relative Strength Index, or RSI, which is a technical analysis indicator used to measure momentum on a scale of zero to 100. A stock is considered to be oversold if the RSI reading falls below 30.
Daily FT: – Emerging bond sales surpass $ 260 b in first half 2014. – Emerging market borrowers sold over $ 260 billion worth of bonds in the first half of 2014, outstripping year-ago levels despite geopolitical noise as borrowers rushed to take advantage of lower-than-expected US yields.
MarketWatch: Fitch: – Pulling of latest cat bond deal may signal pricing floor. – In a signal of investor restraint due to less favorable price-to-risk terms, Munich Reinsurance Group (Munich Re) announced last week that it had withdrawn its latest catastrophe bond issuance (Queen Street X, Ltd.) due to weak demand. Pushback on the deal’s pricing could be a sign that investors are approaching a limit on acceptable catastrophe risks, according to Fitch Ratings.
CNBC: – Pension funds main cat bonds investors. – Urs Ramseier, chairman at Twelve Capital, says that the main benefit of catastrophe bonds is that they are “uncorrelated with other assets” and discusses spreads.
Rick Ferri: – The risk of short-term bond funds. – Did you miss returns from intermediate-term bond funds because you sat in a short-term bond fund waiting for interest rates to rise? A lot of people did. This strategy has backfired as the opportunity cost of not being in intermediate-term bonds has been more costly than whatever damage rising interest rates might have taken away.
Institutional Investor: – What you don’t know about long bonds. – PIMCO’s Moore and Rodosky: Market explanations of long bond trends should be considered with a grain of salt.
Chicago Tribune: – Global investors pare risky bond holdings, brace for sell-off. – Some of the biggest global investors have started to pull back from riskier fixed-income assets even as the Federal Reserve keeps on a green light for risk.
ETF Daily News: – 5 Portfolio moves for the second half. – Through 2014 so far has seen a number of surprises, the year has played out mostly according to the 2014 outlook my colleagues and I laid out late last year.
Investor Today: – ‘Fixed income investors cannot be passive’ – warning. – Investors in fixed income cannot be as passive in the coming years as they could be throughout 2012 and 2013, Gareth Isaac, co-manager of the Schroder Strategic Bond Fund has warned.
Fox Business: – The risks of floating rate funds. – Any yield-focused investor would be pleased with a portfolio that had no volatility, generated an annual return of about 4 percent and promised rising income in the years ahead. But all of the new money flowing into bank-loan funds should be a matter of concern.
Forbes: Best ETFs: – International bond funds. – If you must own foreign bonds, these funds will do. Their ten-year ownership costs range down to $332 per $10,000 of starting capital.
Gross: #Yellen confirms that monetary policy is a blunt instrument. Macroprudential policy better at preventing bubbles. Front end bullish.
— PIMCO (@PIMCO) July 2, 2014
— Cate Long (@cate_long) July 2, 2014