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This Week’s Top Bond Market Stories – December 13th Edition

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Learn Bonds: – Expect near-zero interest rates in 2015. – As the economy looks for a way to bounce back, plans to keep interest rates close to zero through the rest of the year by the Federal Reserve may have to be scrapped. It appears that extending low interest rates in 2015 may not happen, which for bank investors is incredibly bad news.

Learn Bonds: – Guess who beats Apple and Alibaba in bond sales? – In dollar denominated corporate bonds, Medtronic, Inc. sold $17 billion in an effort to fund next year’s acquisition with Covidien, a hospital supplies manufacturer in Ireland. Ranked as the largest corporate bond sale in 2014, Medtronic’s sale pulled in orders of $45 billion, beating out April’s bond offering by Apple of $12 and last month’s offering by Alibaba of $8 billion.

Learn Bonds: – Duration – The bond statistic you need to understand. – Many investors look at bonds in very simplistic fashion. If the obligation generates enough yield and is from a familiar issuer, it may be a no brainer buy for many. For the more discriminating bond investor, a number of data points will enter into the picture: yield, maturity, credit profile, call protection, forward outlook for the issuer — just to name a few.

Learn Bonds: – When will short term interest rates rise? – The basic headlines indicate that there is great concern within the Federal Reserve about when short term interest rates are going to rise and how they will rise.  In addition, we read in recent days about how officials within the Fed are working on the wording relating to “forward guidance” about when short-term interest rates are going to rise.

Learn Bonds: – Does active bond fund management make sense – Part 2. – In the second part of our series on bond fund management, we’re going to offer two more reasons to consider active management. Last we discussed three important reasons to consider an active manager. This time, you’ll find two more reasons why holding on to passively-managed indices isn’t a great idea.

To see a list of high yielding CDs go here.

Municipal Bonds

Reuters: – U.S. muni market expecting second week of high volume issuance. – The U.S. municipal bond market will enjoy a surge of debt from issuers next week, marking a second consecutive week of large volumes.

Providence Journal: – Are you prepared for short-term rates to rise? – Portfolio manager Craig Brandon offers his thoughts on the floating-rate municipals asset class and Eaton Vance Floating-Rate Municipal Income Fund (the Fund), the first floating-rate municipal income mutual fund offered to U.S. investors.

Bloomberg: – High-yield munis beat Iraq for Rich Bernstein. – High-yield municipal bonds are a worthwhile investment because they offer greater rewards than even Iraqi government debt, according to Richard Bernstein, who runs a money-management firm bearing his name.

WSJ: – Detroit exits municipal bankruptcy case. – (Subscription) Detroit emerges from bankruptcy 15 months after filing for Chapter 9 protection.

The Two Way: – Kentucky says Noah’s Ark theme park won’t get tax breaks. – Christian group in Kentucky that is building a Noah’s Ark theme park says it will legally challenge the state’s decision to withdraw its offer of tax breaks for the project.

 

Bond Market

Barron’s: – Bond benchmark could be losing its relevance for funds. – When it comes to beating a benchmark, U.S. bond-fund managers have been looking smarter than their stock peers. Nearly 60% of taxable-bond managers beat the Barclays U.S. Aggregate Index in the past three years, triple the percentage of U.S. equity managers who beat the Standard & Poor’s 500.

Bloomberg: – Bond traders double down on no-inflation in ETFs. – Trading in two of the biggest exchange-traded funds that buy U.S. government debt shows investors are backing away from bets on inflation picking up at the fastest pace this year.

Investing.com: – Will the bond bull market ever end? – Will the “bond bull” market eventually come to an end?  Yes, eventually. However, the catalysts needed to create the type of economic growth required to drive interest rates substantially higher, as we saw previous to the 1960-70’s, are simply not available today.

ETF Guide: – The bull market in U.S. Treasuries that just won’t quit. – The almost 3% correction in the S&P 500 over the past week has pushed long-term Treasury bond ETFs (TLT) higher by around 2.75%.  And just like that, the bull market in bonds that 100% of Wall Street’s economists said would end badly in 2014 continues uninterrupted. Apologies for saying it, but we told you so!

 

Treasury Bonds

Barron’s: – Two-year note yield takes off. – A strong jobs report lifted bond yields, with Treasury’s two-year note at the center of the action. Also: higher yields in energy junk bonds.

Bloomberg: – Treasuries advance on refuge demand as global stocks decline. – Treasuries rose, pushing 10-year note yields down to a one-week low, on demand for safety as stocks fell around the world and as China tightened lending rules for local governments.

Chicago Tribune: – Treasury bond rally sends yields lower. – Treasuries rose Tuesday, pushing 30-year bond yields to a seven-week low, as Chinese efforts to tighten lending rules and a renewal of political instability in Greece spurred demand for the haven of U.S. government debt.

Market Realist: – What caused U.S. Treasuries to move last week? – In the secondary market, yields rose across the curve last week with the two-year to 10-year segments seeing a rise of more than 10 basis points each. Whats happening?

 

Investment Grade Bonds

Morningstar: – Robust liquidity returns to corporate bond market. – Following the Thanksgiving holiday, robust two-way flows returned as the buyers who had been missing from the marketplace showed up. Liquidity improved significantly across the market, although one trader noted that it was still difficult to move 30-year off-the-run bonds.

Bloomberg: – Bank of Canada warns of liquidity risk in corporate bonds. – Canadian corporate bond investors may be underestimating the difficulty of selling their holdings in a market downturn, leaving them open to greater losses, the Bank of Canada said.

ADFN: – Bond investors look to cull the herd. – After years of strong gains and buying record amounts of debt, corporate-bond investors are facing a new challenge: what to sell.

ETF Trends: – Corporate bond ETFs could be losing steam. – After an unexpectedly good year for fixed-income assets, corporate bond exchange traded fund investors should tone down their expectations.

 

High-Yield Bonds

FT Alphaville: – Disaggregating high-yield returns by sector. – (Subscription) 2014 has been a disappointing year for high-yield. That’s pretty remarkable considering that sovereign interest rates have plunged over the past 12 months. Why? The oil price collapsed. But what happens when you remove high-yield energy bonds, how did junk perform then?

Forbes: – JNK crosses critical technical indicator. – In trading on Friday, shares of the SPDR Barclays High Yield Bond ETF entered into oversold territory, changing hands as low as $39.06 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.

FT Adviser: – A new frontier for yield. – (Subscription) With developed market bonds yielding record low returns, fund managers are venturing into frontier and emerging markets – notably in Africa, the fashionable destination for intrepid investors.

Bloomberg: – Oil-driven junk-bond selloff spreads as risk gauge climbs. – The rout in junk bonds driven by tumbling oil prices is getting worse as one of the high-yield market’s largest sector weighs on other industries.

Bloomberg: – Junk-bond yields poised for biggest jump since August. – Junk-rated companies are facing the biggest jump in borrowing costs in at least four months as the plunge in oil prices roils the U.S. bond market.

 

Emerging Markets

Barron’s: – Emerging market debt, China credit, is risky, UBS panel says. – Investors and strategists assembled at a recent UBS Wealth Management forum concluded that emerging debt markets pose significant risk.

Barron’s: – HSBC’s Pedley warns on Asian high yield bonds. – (Subscription) Benjamin Pedley, regional head of investment strategy for Asia at HSBC Private Bank, has a message for the region’s private banking customers: you are holding too many Asian high-yield bonds.

Bloomberg: – AAA-or-nothing ruling adds to China bond default concern. – With $90 billion of bonds sold by local government financing vehicles coming due next year, China is walking a fine line between teaching investors a lesson and preventing widespread defaults.

CNBC: – Why a stronger dollar may not bite EM bonds. – Emerging markets may be buffeted by a stronger U.S. dollar and lower commodity prices, but the segment’s bonds still look like a good bet, analysts said.

 

Investment Strategy

ETF Trends: – Bond ETFs for cost-conscious investors. – The November jobs report, revealed Friday, stoked speculation that the Federal Reserve is on pace to raise interest rates in the first half of 2015.

24/7 Wall St: – The best investments of 2014. – Every year, new global trends emerge, old ones play out, and the financial markets adjust. This can offer new opportunities for investors to make money if their forecasts are accurate, their investments are timely, and they choose their assets well.

Morningstar: – Don’t overlook the risks of individual bonds. – High transaction costs, lack of flexibility, and credit-quality risk loom large.

Citywire: – Fixed income star reveals top 2015 themes and plays. – (Registration) Citywire AAA-rated Andrew Wells identifies three main drivers of the bond market in 2015 and unveils his best investment ideas.

ETF Trends: – Use broad ETFs for core investment positions.  – With over 1,600 U.S.-listed exchange traded funds on the market, building an investment portfolio may seem daunting, but it does not have to be.

 

Bond Funds

ETF Daily News: – Krane shares launches niche China bond ETF. – Emerging market bonds have been gaining immense popularity in recent months as central banks around the world are following loose policies in contrast to the U.S. Out of the emerging market debts, the China bond market is growing rapidly and has grabbed investors’ interest lately.

MarketWatch: – Gundlach, Liberman to launch DoubleLine long duration total return bond fund. DoubleLine Capital expects to construct an investment portfolio for the Fund with a dollar-denominated average effective duration of at least 10 years.

Morningstar: – ETFs are not always cheaper. – On an asset-weighted basis, institutional mutual fund share classes are lower than ETFs’ in all but one Morningstar Category, largely due to the Vanguard effect.

ETF Trends: – ETFs keep on raking in cash. – After the stellar inflows totals posted by the exchange traded funds industry 2012 and 2013, another record year of asset gathering may have seemed unlikely at the start of 2014, but ETFs have defied the odds this year.

ETF Trends: – Issues to consider with mREIT ETFs in 2015. – Buoyed by tumbling 10-year Treasury yields, mortgage REIT exchange trade funds have been solid though not spectacular performers this year.

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All trading carries risk. Views expressed are those of the writers only. Past performance is no guarantee of future results. The opinions expressed in this Site do not constitute investment advice and independent financial advice should be sought where appropriate. This website is free for you to use but we may receive commission from the companies we feature on this site.
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