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This Week’s Top Bond Market Stories – December 6th Edition

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Learn Bonds: – German bonds drop as investors await ECB policy meeting. – For a second day, German Bonds declines while investors determined if officials with the European Central Bank will add more stimulus at this week’s policy meeting.

Learn Bonds: – Is there value in bonds today? we seldom hear the word value uttered in conjunction with the fixed-income market given historically low coupon rates. However, while the light at the end of the “ZIRP (zero interest rate) tunnel” finally seems to be seen, bond investors have exhibited renewed buy pressure this year, somewhat surprisingly driving longer-term rates significantly lower.

Learn Bonds: – Treasuries Rise on Relative Yield Value after ECB Cuts Forecasts. – As the European Central Bank’s decision to delay additional stimulus increased the attractiveness of higher yielding US governmental debt with the potential for fast growth in Europe declining Treasuries rose for a second day.

Learn Bonds: – Is there value in bonds today? – we seldom hear the word value uttered in conjunction with the fixed-income market given historically low coupon rates. However, while the light at the end of the “ZIRP (zero interest rate) tunnel” finally seems to be seen, bond investors have exhibited renewed buy pressure this year, somewhat surprisingly driving longer-term rates significantly lower.

Learn Bonds: – Does Active Management for Bonds Make Sense? – Part 1. – Is there any value in actively managing bond investments?  After all, with all those ETFs and bond mutual funds out there, many that reflect an index, why bother paying someone to manage a fund?

To see a list of high yielding CDs go here.

 

Municipal Bonds

Bernardi Securities: – Illinois Public Pension Compendium – Part One: Illinois Pension Basics. – The first release in our series deals with Illinois pension basics.  Its focuses on Illinois’ pension framework, governance, and actuarial valuation practices.

Van Eck: – Is green the color of munis? – According to Bank of America Merrill Lynch (BAML) in a November issue of its Municipals Weekly: “Since green bonds officially debuted in the U.S. municipal bond market in June 2013, roughly $1.6 billion of green bonds are scheduled to, or have been issued.” While still a nascent market, the applicability and suitability of green bond issuance for municipal issuers is endless.

Bloomberg: – Muni market set to shrink as texas leads rising sales. – The U.S. municipal bond market is poised to contract in the next month as redemptions and maturing debt exceed the accelerating pace of new securities sales.

Bloomberg: – SEC raises pressure on borrowers as leniency ends. – As the leniency program ends, borrowers may face fines if they’re charged with fraud.

Businessweek: – Detroit emergency manager Kevyn Orr planning resignation. – Detroit Emergency Manager Kevyn Orr said he may submit his letter of resignation to Governor Rick Snyder within days.

Bloomberg: – Houston stadium debt backfire spurs restructuring. – The agency that financed stadiums for three of Houston’s professional sports teams is selling debt to extricate itself from municipal-bond deals that backfired with the financial crisis.

 

Bond Market

Market Realist: – Why the Fed’s bond buying program has led to pricey assets. – With cash paying nothing and long-dated bonds barely keeping up with inflation, investors have bid up most asset classes in search of a decent return. However, according to Russ, there is one asset class that still looks cheap: volatility.

Forbes: – Bonds are boring, right? Bonds, particularly U.S. Treasurys, are supposed to be slow and steady investments. U.S. Treasurys are viewed as a safe, and perhaps boring, fixed-income investment option used for producing steady income and portfolio “ballast” during times of market volatility in other asset classes.

Investment Week: – Bond Veteran: ‘I Am Most Nervous About Fixed Income Since 1990’. – Veteran US bond manager Bill Eigen said he has never been so nervous about fixed income markets during his entire career, which spans over three decades.

Times Union: – 2015 bond outlook: low expectations. The bond market will likely produce modest returns, if they’re positive at all, according to many bond-fund managers. It’s a matter of math: Bonds are offering very low interest rates following a decades-long drop in yields. That means they’re producing less income.

 

Treasury Bonds

ETF Trends: – Investors can’t get enough of Treasury bonds, ETFs. U.S. government bonds and Treasuries-related exchange traded funds advanced for the fifth straight day Wednesday as mixed economic data, low inflation and foreign investors helped keep the rally going.

ETF Trends: – Investors can’t get enough of Treasury bonds, ETFs. – U.S. government bonds and Treasuries-related exchange traded funds advanced for the fifth straight day Wednesday as mixed economic data, low inflation and foreign investors helped keep the rally going.

WSJ: – More investors bullish on U.S. government bonds. – A gauge of views on U.S. government bonds has turned positive for the first time in eight months, a sign that more investors are becoming bullish on the $12.3 trillion Treasury market amid faltering global growth.

Businessweek: – Treasury Bond Rise Trims Yield Curve to 6-Year Low on Inflation. – Treasury bonds rallied, pushing the difference between yields on the securities and five-year notes to the narrowest in almost six years, after a report showed unit labor costs declined.

Market Realist: – The monetary policy announcement impacts U.S. Treasuries. – Monetary policy announcements are significant events for the fixed-income market. For the fixed-income market, the policy is a direct signal for the country’s key interest rate. Although a central bank can’t force commercial banks to make changes to their rates based on its signal, it can strongly indicate where it would like interest rates to be.

 

Investment Grade Bonds

MarketWatch: – Medtronic selling at least $10 billion of bonds for Covidien acquisition. – Medical-device manufacturer Medtronic Inc. is expected to sell at least $10 billion of bonds Monday to help pay for its acquisition of Ireland’s Covidien PLC, making it one of the largest bond deals of the year, according to investors familiar with the deal.

Bloomberg: – U.S. corporate bond sales pass $1.5 trillion for annual record. – U.S. corporate bond sales swelled to an annual record as a late-year rush by borrowers to lock in low interest rates pushed offerings for 2014 pass $1.5 trillion.

Bloomberg: – Global Company-Bond Sales Pass $4 Trillion for First Time. – Global sales of corporate bonds breached the $4 trillion threshold in an already record-setting year as companies load up on cheap financing before a forecasted rise in interest rates next year.

IFR: – Amazon pays up to price US$6bn of bonds. – Amazon paid up to triple the size of its outstanding bonds on Tuesday, issuing US$6bn of securities at levels that didn’t budge from initial price thoughts and offered investors about 15bp of new issue concession.

 

High-Yield Bonds

Businessweek: – Beware the vulnerable oil debt that lurks in your junk-bond ETFs. – It pays to look a little closer at your investments in exchange-traded high-yield funds right now to find out just how exposed you are to plunging oil prices.

FT: – Refinery and pipeline junk debt outshines. (Subscription) Not all junk rated bonds in the US energy sector have come under fire during the rout in oil prices, with pipelines and refineries outperforming as investors rotate their holdings across the market.

ETF Trends: – An active ETF approach to junk bonds. – The speculative-grade bond market is notoriously known for its illiquid nature. Consequently, fixed-income investors seeking to generate some extra yields through junk bond exchange traded funds may consider active options with managers monitoring the underlying market.

Bloomberg: – Junk yields reach 14-month high as investors shun energy. Investors are fleeing high-yield bonds as the meltdown in the energy industry pushes borrowing costs to the highest level in more than a year.

Income Investing: – Higher-Rated Bonds Benefit As Oil Hurts High Yield. – Ned Davis Research today tells investors to mind their high-yield exchange-traded funds, because – as I pointed out in my Current Yield column last month – high-yield funds are becoming bets on the energy sector, with varying degrees of sector exposure.

 

Emerging Markets

The Age: – Why Boston’s $29 billion man avoids China. – Dan Fuss, 81, has made a career profiting off debt crises. In the 1980s, he loaded up on distressed Latin American assets others wouldn’t touch. A decade later, to the consternation of peers, he bet on Malaysian and South Korean bond.

ETF Database: – Between a rock and a hard place: Outlook for Brazil. – Investors in Brazil have had the dubious pleasure of undergoing one of the more stomach-churning rides in 2014. Although the sell-off of the past few months has pummeled valuations, bargain investors might be better off looking elsewhere for a more promising emerging-market opportunity. Here are the reasons why.

Bloomberg: – Emerging market distressed debt loses most since 2008. Losses in emerging market distressed debt have mounted to the worst since the global financial crisis led by Indonesian coal miner PT Bumi Resources and ZAO Russian Standard Bank.

Bloomberg: – Emerging market distressed debt loses most since 2008. – Losses in emerging market distressed debt have mounted to the worst since the global financial crisis led by Indonesian coal miner PT Bumi Resources and ZAO Russian Standard Bank.

IFR Asia: – Markets question economics on Argentina’s Boden swap. Argentina’s liability management transaction drew a mixed reaction Thursday, as the country looks to reduce rollover risk ahead of presidential elections next year and possibly strengthen its hand in any negotiations with holdout investors, say analysts.

 

Catastrophe Bonds

Artemis: – Insurance buyers look to cat bonds, collateralized alternatives. For years we’ve written that insurance companies increasingly look to alternative sources of reinsurance capacity, from insurance-linked securities (ILS) players and the capital markets. But now, according to Marsh, insurance buyers are looking at alternatives too.

Insurance Journal: – A.M. best report: Last resort insurers welcome catastrophe bond market. The convergence market has provided an opportunity for entities that act as insurers of last resort to transfer some of their peak exposures to the capital markets, according to a Best’s Special Report titled, “Last Resort Insurers Welcome Relief From Growing Catastrophe Bond Market.”

Artemis: – Research Quantifies Changing Pattern of U.S. Severe Thunderstorm Risk. – A new piece of insurance industry research, announced today by Verisk Climate a division of Verisk Analytics, seeks to explain the changing frequency of severe thunderstorm weather events in the U.S.

 

Investment Strategy

Toma Hentea: – Rebalancing of fixed asset allocation portfolios: How often? Frequent rebalancing of fixed income portfolios is not effective: it adds very little in returns, while increasing the drawdown. Best improvements were obtained by rebalancing at 36 months intervals, or at 30% deviation.

Money Beat: – Wealth Adviser: The Big Risk in Immediate Annuities. While they’re still a small slice of the overall annuity market, sales of single-premium immediate annuities have risen sharply this year. And that has some financial planners concerned, particularly about their use by investors who aren’t retired yet and who could see the buying power of their monthly payouts whittled down by inflation.

Benzinga: – Potential moves to make with bonds going into 2015. Bonds have had a very good 2014 as the 10 year treasury yield decreased from 3.0 percent on January 1 to a current yield of around 2.35 percent. Many investors and money managers are now wondering what to do with their bond allocations as 2015 approaches. Here are thoughts on some major bond classes, keeping in mind balance risk reduction and maintaining some positive returns over the next 12 months.

ETF Trends: – How 30-somethings can put bonds to work. In a recent Blog post, I revealed how Millennials may want to think about fixed income in their portfolios. Bonds can play an important role in managing portfolio risk, even if you have a long investment time horizon. What’s more, bonds aren’t just for people in retirement or Millennials; they can be incredibly useful for other life stages as well.

Market Realist: – Why Long-Dated Bonds Underperform When Rates Rise. – What does this mean for bond investors? And what investing resolutions should you make in 2015?

 

Bond Funds

FT: – Pimco suffers $100bn in redemptions from top funds. (Subscription)  Pimco has accounted for half of the 10 funds with the biggest outflows so far this year – bleeding more than $100bn – as rivals snatched market share from the world’s largest bond manager while it struggled to contain management infighting.

Reuters: – DoubleLine, Pimco rival, posts 10th straight month of inflows. – Jeffrey Gundlach’s DoubleLine Funds, an investment firm that has been a major rival of bond fund Pimco, reported its 10th consecutive month of inflows in November, totaling $1.16 billion, following a monthly inflow of $2.38 billion in October, the highest this year.

Bloomberg: – Pimco Total Return withdrawals slow to $9.5 billion. Pacific Investment Management Co.’s biggest mutual fund suffered $9.5 billion in withdrawals in November, the second full month after the surprise departure of former manager Bill Gross.

CNBC: – Pimco’s ex-investors may not be better off. When Bill Gross bolted Pimco in late September after months of mediocre performance in his Total Return Fund, clients including Wells Fargo & Co. and Charles Schwab Corp pulled over $61 billion from the Newport Beach, California-based money manager. Where the money landed may be no better than where it left.

Bloomberg: – Pimco Total Return Sold Agency, Sovereign Debt Amid Redemptions. – Pimco Total Return Fund sold some of its most liquid assets during the third quarter as the September departure of Bill Gross triggered record redemptions.

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