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QE3 Ends – Rates Will Stay Low and Today’s Other Top Stories

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The Federal Reserve confirmed it will end its asset-purchase program known as QE3 at the end of this month.

The quantitative easing programme, introduced more than five years ago to steer the world’s largest economy through the financial crisis has added more than $4.5 trillion dollars to the Feds balance sheet.

To see a list of high yielding CDs go here.

The Fed cited further improvement in the labor market for its decision. “Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate,” the Federal Open Market Committee said today in a statement.

“A range of labor market indicators suggests that underutilization of labor resources is gradually diminishing,” the panel said, modifying earlier language that referred to “significant underutilization” of labor resources.

Policy makers maintained a pledge to keep interest rates low for a “considerable time.” While saying inflation in the near term will probably be held down by lower energy prices, they repeated language from their September statement that “the likelihood of inflation running persistently below 2 percent has diminished somewhat.”

The FOMC repeated it will consider a wide range of information in deciding when to raise the federal funds rate, which has been held near zero since December 2008. Most Fed officials expect to raise the rate next year, according to projections released last month.

After the announcement benchmark 10-year Treasuries yielded 2.35 percent, up 5 basis points from yesterday.

 

Todays Other Top Stories

Learn Bonds

Learn Bonds: – Junk Bonds – Do you have the stomach for them? – Investors are likely to think of the high-yield portion of the bond market as a small, specialized space reserved for only the very risk tolerant. While there certainly is elevated risk in loaning money to companies with not-so-stellar credit, junk bonds have become much more than a niche investment option. Current figures place the total value of domestic junk bonds somewhere between $1.5-2 trillion.

 

Municipal Bonds

Reuters: – World Trade Center muni deal prices some debt at junk rates. – New York’s Liberty Development Corp issued its $1.6 billion deal for World Trade Center unrated tax-exempt bonds on Tuesday, pricing the deal with coupons as high as 7.25 percent, a level consistent with rates of risky muni junk bonds.

Jacobson Law: – Jacobson Law P.A. investigating Puerto Rico municipal bonds and closed-end bond funds. – Jacobson Law P.A. is investigating claims on behalf of investors who invested in Puerto Rico debt — including Puerto Rico municipal bonds and closed-end funds (“CEFs”) that invested in Puerto Rico municipal bonds — through UBS Puerto Rico (“UBS”), Santander Securities LLC (“Banco Santander”), Popular Securities LLC (“Banco Popular”), Oriental Financial Services Corp. (“Oriental Bank”), and others.

Income Investing: – After muni volatility, some buying opportunities return. – “Volatile” and “municipal bonds” aren’t terms you’d pick to pair together, but lately munis have been through an exceptionally volatile period (by muni standards, anyway), and the risk of occasional turbulence may persist. The good news is that some munis went from looking broadly overbought mere days ago to looking like decent values again, creating new buying opportunities for certain maturities.

Income Investing: – Puerto Rico facing ‘narrowing liquidity’ – Moody’s. – Moody’s Investors Service today says Puerto Rico faces “narrowing liquidity” as its cash dwindles, saying the commonwealth’s financial position “remains vulnerable, and reliant on continued bond market access, even as lenders impose increasingly onerous terms and punitive borrowing costs.”

 

Bond Market

IFA: – Bonds: Is the party over? – You can’t have missed the final curtain calls for corporate and government bonds in recent months. Overpriced, overbought, and soon to fall victim to deliberately-induced rises in interest rates and consumer prices as the spectre of deflation stalks the Western world. Who’d be a bond buyer now?

TheStreet: – Fed may be ending bond buying, but not deficit reduction. – The Federal Reserve is expected to say Wednesday it’s ending its five-year-old bond-buying program, known as quantitative easing, this month. But something else won’t be ending: the central bank’s key role in helping to reduce the federal deficit.

CNBC: – As Fed leaves bond market, here’s who will step in. – The end of the Federal Reserve’s quantitative easing program and its fight against “too big to fail” banks are on a collision course in the bond market. When quantitative easing ends in October, the market for Treasuries and mortgage-backed securities will see its biggest net buyer stepping back.

FT: – Bond trading platforms raise stakes. – (Registration) The battle of the electronic bond trading platforms is set to intensify as Tradeweb rolls out its new offering to a wider range of market participants on Wednesday.

FT: – The fiendish bond market needs a radical rethink. – (Registration) Companies issue such a dizzying number of different bonds that it is impossible to focus the same light on the fixed income market as on equities. In the past, although bond investors grumbled, the opacity did not matter to companies one jot. But the market has changed and it matters now.

WSJ: – The Fed favors guidance over bond buys. – (Registration) The Federal Reserve’s forward guidance has been a lot more effective at keeping long-term rates down and stimulating the economy than its three bond-buying programs, says Eric Swanson, an economist at the University of California, Irvine, who until recently was a researcher at the San Francisco Fed.

 

Treasury Bonds

MarketWatch: – Why it’s so hard to trade a Treasury bond right now. – How volatility means bumpier trading for everyone else.

 

High Yield Bonds

MarketWatch: – Fixed Income opportunities highlighted by selected high yield sectors. – Fixed-income markets remain volatile: Europe is challenged, Brazil might struggle, and China is dealing with a potential property bubble. Opportunities nonetheless remain rife for savvy investors, particularly in the high-yield markets. Western Asset believes high-yield should be a key component of any successfully diversified bond portfolio.

 

Emerging Markets

ETF.com: – Daily ETF watch: Brazil bond fund planned. – WisdomTree has filed for the ETF market’s first single-country bond fund targeting Brazil, Latin America’s biggest economy.

FT: – Fed leaves emerging markets exposed. – For six years, emerging markets have lived in a world defined by the US Federal Reserve’s policies of easy money. Tides of liquidity have flowed from developed to developing economies, financing infrastructure and corporate investment and allowing consumers to indulge credit-fuelled retail dreams. Thus, the Fed’s announcement on Wednesday that it would draw quantitative easing to an end represents both a watershed and a leap into the unknown.

 

Catastrophe Bonds

Artemis: – Cat bonds help California Earthquake Authority to offer rate reduction. – The California Earthquake Authority (CEA), the publicly managed residential earthquake insurance provider, is proposing to reduce homeowners rates, as savings made due to catastrophe bonds and lower-cost reinsurance flow through to consumers.

 

Investment Strategy

InvestorPlace: – Trade of the Day: iShares iBoxx $ High Yld Corp Bonds ETF. – Banks in the United States are preparing for another round of stress tests by dumping high-risk bonds. According to data from the Fed, banks reduced their positions in these bonds by 68% in October, which is the largest selling frenzy on record. To capitalize on this, we’re opening a new bearish trade on iShares iBoxx $ High Yld Corp Bond ETF (HYG).

 

Bond Funds

MarketWatch: – Wall Street’s Elvis has left the building. – For years, institutional and individual investors in the Total Return Fund have been Bill Gross groupies. Like breathless teenage girls, they stand stunned and lightheaded after hearing that their beloved, their Elvis, has left the building. Blessings and peace to Bill Gross at Janus. Best of luck to Total Return Fund investors as they ponder what to do next. Fortunately, I have better things to do with my time.

Businessweek: – Pimco replaced by BlackRock at $6 billion prudential fund. – Pacific Investment Management Co., seeking to stem redemptions after its co-founder Bill Gross left unexpectedly, was dropped as manager of a $6.16 billion strategy offered by a unit of Prudential Financial Inc.

Go Local PDX: – The lesson from the Bill Gross saga: Invest in markets, not managers. – It’s been interesting to follow the recent handwringing in the financial press about Bill Gross, the bond fund manager, and his abrupt departure from the investment firm, PIMCO.

 

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