This Week’s Top Bond Market Stories – August 7th Edition

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Learn Bonds: – Corporate bond default loss risk quantification made simple. – In this article I will try to derive what default loss risk percentages should be applied in evaluating specific bonds (i.e., bonds with different credit ratings, years to maturity or call, and lien [seniority/subordination] positioning). I will also present a default loss risk quantification system that is both simple and relatively accurate.

Learn Bonds: – How I interpret bond market interest rates. – Since this is my first post for Learn Bonds, I thought it might be useful to explain how I go about interpreting bond market interest rates. More specifically, I would like to discuss how I interpret the current yield on the 10-year United States government note.

Learn Bonds: – How to avoid Ackman’s JC Penney mistake. – Hedge fund manager Bill Ackman’s fund Pershing Square recently sold its shares of JC Penney for an approximate 50% loss of nearly $500M. While the overall market has enjoyed significant upward momentum, Pershing Square seemingly picked the wrong company, JC Penney, at the wrong time, $25 a share in 2010.

Learn Bonds: – The risk of rising rates. – Most of the investing public, both individual investors and professionals, have had the majority of their experience in the markets in a bullish bond market. Rates hit a peak of 15.3% in 1981 and from there, trended down to a low of 1.4% in July 2012. While there were periods of time where rates rose for a bit, the overall trend has been down. As rates fall, prices of bonds rise.

Caprin Asset Management: – Bonds: Now What? – With all the coverage about the Great Rotation and the possibility of ‘Sep-taper’, bond investors seek insight on how to position portfolios given new yield curve drivers. Investors in longer dated and/or credit sensitive funds have been challenged since May. But that is not how your Caprin strategy invests. Our intermediate investment solutions seek a Capital Preservation and Income balance, and here are some perspectives on our current thinking.

FT: – Bond yields defy forward rates guidance. – Bond markets are more likely to be right than economists. But central bankers are economists with monetary weaponry. Those selling bonds need to be sure central bankers will not back up their words with action.

Emmanuele Marrot: – Should you invest in Lending Club: A statistical analysis. – bond returns are frustrating low, and an alternative has recently emerged: ‘Peer to Peer lending’. P2P lending relies upon Internet as an intermediation platform, to lend (relatively) small amounts to numerous borrowers. Thanks to the law of large numbers, spreading the invested money over hundreds or thousands of borrowers significantly reduces the risk. Unless they’re all correlated, as the Housing crash showed, but that’s a different story…

MoneyBeat: – Ten-year yield poised to break through 3% ‘tripwire’. – If you were burning with curiosity about how the U.S. economy might react were the Fed to pare back its bond-buying program and bond yields were to rise, you may be about to find. The latter, though, looks like it will hit the scene before the former.

Market Anthropology: – Dancing with gorillas & the yin & yang of yields. – As yields continue to move with all the grace and gentility of your average 800-pound gorilla, we thought we’d revisit our Pole Reversal chart we occasionally reference from time to time to see where things line up.

MoneyBeat: – Who cares about Syria? The Fed is buying fewer bonds! – Financial analysts might bleat about market nervousness over the likelihood of U.S. air strikes against Syrian President Bashar al-Assad, but the brutal truth is that Wall Street doesn’t care about war. Right now, all it cares about is the Fed.

FT: – Rush to U.S. debt markets ahead of jobs data and Fed meeting. – Big companies are rushing to the US debt markets this week, trying to lock in borrowing costs at low levels before a possible jump in rates and ahead of important jobs figures and a Federal Reserve meeting.

ETF Trends: – Fight rising rates with international, short-duration bond ETF. – The biggest losses since 1999 for municipal debt signal that Detroit’s bankruptcy and 14 weeks of withdrawals from mutual funds are overwhelming historical trends pointing to a rebound in the $3.7 trillion market.

Ian Wyatt: – Why you’re probably not protected from the bond bubble. – Is your portfolio adequately protected from rising interest rates and a bond bubble?

FT: – What the Fed will do with its taper and why. – This week’s heavy schedule of data releases will likely have a big, if not determining, say in “when” and “how” the US Federal Reserve tapers its quantitative easing programme – that is, start moderating its exceptional support for markets and the economy. And while most assessments will focus on the timing, scale and scope of the policy adjustments, the “why” will be as important, if not more so in shedding light on what may lie ahead.

ETF Trends: – Bond ETFs vs. Equity ETFs. – Welcome to the second instalment of our Master Class on bond ETFs, where we go beyond the basics to learn how these funds work and gain an understanding of their features and benefits.  Last time, we talked about the three key elements of a bond ETF.  Now that we’ve laid the foundation, the next concept to tackle is how they compare to stock ETFs.

MoneyBeat: – Verizon’s jumbo bond could even top Apple’s. – Investors in Europe, as well as in the U.S., are licking their lips in anticipation of Verizon’s jumbo debt sale that will partly finance its acquisition of Verizon Wireless.


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