This Week’s Top Bond Market Stories – August 10th Edition

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Learn Bonds: – The corporate bond market: Often misunderstood and under-appreciated. – This is the first article in a multipart series regarding corporate bonds. The end goal is to convey a much more accurate understanding of corporate bond default losses and what return you should expect on corporate bond investments. First, though, I will cover some more basic material to make certain that we better understand the corporate bond market.

Learn Bonds: – Accrued market discount – What you need to know. – According to IRS Publication 550, “market discount is the amount of the stated redemption price of a bond at maturity that is more than your basis in the bond immediately after you acquire it.” Individual bond investors purchasing bonds on the secondary market need to be aware of tax rules related to market discount bonds, specifically how to accrue market discounts.

Learn Bonds: – D.R. Horton issues new 5.75% senior bonds. – Investing in housing or securities related to housing seems to be all the rage. If you want to add exposure to housing but prefer to avoid the buy-to-rent craze sweeping the nation and want to stay away from housing-related common stocks, you might consider moving up the capital structure. Both the preferred stocks of several equity REITs and the senior unsecured debt of a few homebuilders are offering enticing risk-rewards.

BondBuyer: – Why Detroit could have avoided bankruptcy. – I have said this many times in the last few weeks: I don’t believe that Detroit had to file for Chapter 9 Municipal Bankruptcy. This report explains my position.

MarketWatch: – Treasury funds had record outflows; The rest of the bond market didn’t look as bad. – Investors appear to be developing a more nuanced view of the bond market’s various asset classes, a change from the indiscriminate selling that took place during much of the summer. Their sentiment about Treasurys is pretty clear, however: Flee.

MuniNetGuide: – Can muni investors still rely on the unlimited tax G.O. pledge? – Call it the Detroit paradox: the decades-long socio-economic decline that culminated in the Motor City’s bankruptcy filing is quite unique in its magnitude. Yet, Detroit’s Chapter 9 has also brought to the fore some universal issues that are likely to affect the entire muni market for years to come.

Bloomberg: – Potash Corp. bonds teeter toward junk in price-cut threat. – Potash Corp. of Saskatchewan Inc. bonds are heading toward junk status on wagers the breakup of one of the two marketing groups for the crop nutrient will lead to lower prices.

MoneyBeat: – For bond investors, a ‘generational’ chance to sell. – The bond market’s dominance is coming to an end, and the current moment presents a once-in-a-generation selling opportunity, a well-known portfolio manager is saying.

Charts etc: – Bonds reflecting economic news. – The better the economic news, the more likely the Fed begins to taper sooner rather than later. It’s assumed less QE will translate into higher interest rates, a belief that’s putting pressure on bonds. However, another potential reason for bond weakness in the face of encouraging economic news is bondholders sell in favor of re-allocating funds to riskier assets, such as equities. Many are asking the simple question: if the economy is improving, it should benefit companies/stocks so why continue to hold bonds?

Bloomberg: – Bond share tumbles as Morgan Stanley says sell. – Institutional investors’ allocations to dollar-denominated bonds have dropped to the lowest level since 2007 as strategists at Morgan Stanley and JPMorgan Chase & Co. see a shift away from the debt that may fuel higher borrowing costs.

MoneyBeat: – Why you shouldn’t throw sewer bonds out with the bathwater. – Municipal bonds that are paid by revenues from sewer systems have gotten some bad press in recent years. But ask any muni-bond manager, and they will tell you that sewer bonds normally rank among the safest types of muni bonds.

Barron’s: – Goldman: Fed tapering to start in September. – The much-anticipated slowdown in the Federal Reserve’s  monthly bond-buying program will begin in September, according to a Goldman Sachs economist. In a research note published today, Kris Dawsey cautioned that the decision to taper would depend on economic data.

ETF Trends: – ‘Fallen angel’ high-yield bond ETF: This ANGL has wings. – Market Vectors Fallen Angel High Yield Bond ETF (NYSEArca: ANGL) has caught our attention after an abnormal price spike on Friday followed by a big jump in trading volume yesterday.

About.com: July 2013 Bond Market Performance. – After their second-quarter swoon, the taxable segments of the bond market staged a recovery in July, but municipal bonds lagged due to concerns about the broader impact of Detroit’s bankruptcy.

WSJ: – Bond market helps the wealthy get wealthier. – Private-equity firms are adding debt to companies they own to fund payouts to themselves at a record pace, as fears mount that the window for these deals will close if interest rates rise.

Reuters: – Is it smart to lend money to Puerto Rico? – Puerto Rico may be a nice place to visit, but would you really want to lend there? Investors are asking themselves that question as the territory makes its first foray into the municipal bond market in more than a year on Wednesday.

Bloomberg: – No Detroit fallout across U.S. as GO’s stage rally: Muni credit. – Detroit’s record bankruptcy filing isn’t derailing the $3.7 trillion U.S. municipal-bond market. Just ask Tom Hamilton, finance director of Norwalk, Connecticut.

Bloomberg: – Berkshire avoids rout as Buffett sidesteps bonds. – Warren Buffett’s preference for buying stocks and whole companies rather than bonds is helping Berkshire Hathaway Inc. (BRK/A) weather a spike in interest rates better than other insurers.

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Simon G

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