This Week’s Top Bond Market Stories – January 3rd Edition


Learn Bonds: – U.S. economy should continue to expand 3.00% to 3.50%. – During the past two days we have heard diatribes regarding why the bond market “has it wrong,” why inflation/wage growth has to pick up next year, why QE “will save Europe” and why 2015 will be the year housing rebounds (in spite of this morning’s Case Shiller data which indicates that real estate price increases continue to slow). Let’s break this down, piece by piece.

Learn Bonds: – Investing in short term bond funds – What you need to know. – At last, the Federal Reserve has ended the Quantitative Easing program. This may have serious implications for fixed income investments and interest rates. Many investors believe that the Fed will increase short term interest rates in 2015 and because of that reason they no longer find fixed-income investments attractive. The rates may or may not increase, but investors have to remain fully committed to the market.

Municipal Bonds

Bloomberg: – Municipal defaulters decline amid improving economy. – Municipal issuers are defaulting at the slowest pace since at least 2010 as a strengthening economy boosts local-government finances.

Breitbart: – Pension crisis pushes Illinois towards default. – In the world of investment, Illinois’ credit rating is equal to the African nation of Botswana, where the per capita income is around $15,000. This comparison, though, is unfair to Botswana, which unlike Illinois enjoys a growing economy. After decades of Democratic rule led by public sector unions, Illinois is the dead-beat uncle of America’s states.

Bond Buyer: – Long-term volume falls just short of 2013 total. – Long-term municipal bond issuance increased for the fifth month in a row as volume increased 39.9% in December, jumping to $37.83 billion from $27.04 billion a year ago.



BlackRock: – Yield curve basics. – BlackRock’s Matt Tucker visits a San Francisco landmark to give Blog readers a lesson on the yield curve.


Bond Market

Market Watch: – Here’s how stocks and bond yields could rise together. – It’s a widely held expectation that stocks should fall as bond yields rise, but history — and recent experience — shows that isn’t necessarily so.

Think Advisor: – Under the Hood: What you need to know about bonds, Pt. 1: Types and Ratings. – With rates likely to rise in 2015, here’s how to understand the different types of bonds and what their ratings mean.

Businessweek: – Caution rules in best bond year since ’02: Credit markets. – In the best year for the global bond market in more than a decade, investors were rewarded more for being cautious than for taking big risks.

Reuters: – U.S. bonds set for more modest year after banner 2014. – The U.S. bond market could enjoy a solid 2015, but don’t expect a repeat of the spectacular run that some fixed-income sectors enjoyed this year, investors said on Wednesday.


Treasury Bonds

Morningstar: – Treasury bonds strengthen on Greece’s political uncertainty. – Treasury bonds strengthened Monday as the latest political turmoil in Greece boosted demand for haven assets.

Reuters: – Speculators trim net shorts in U.S. 10-year T-note futures -CFTC. – Speculators’ net bearish bets on U.S. 10-year Treasury note futures fell in the latest week from their highest level in more than 4-1/2 years, according to Commodity Futures Trading Commission data released on Tuesday.

Morningstar: – Treasury bonds poised for biggest annual rally in 3 years. – U.S. government bonds are set for the biggest annual rally in three years as uncertain global economic prospects and the ripples from tumbling oil prices boosted demand for haven assets.


Investment Grade Bonds

WSJ: – Debt investors looking to profit from oil collapse. – (Subscription) The collapse of oil prices is uncovering a well of opportunities for corporate-bond investors looking ahead after a year of healthy returns and record-high debt sales.

Money News: – Apple’s Atlantic bond crossing sets 2015 course. – U.S. companies are forecast to cross the Atlantic to raise funds in euros at the fastest pace in at least eight years in 2015 as borrowing costs in Europe fall below dollar rates by the most in a decade.

The Australian: – Debt investors looking to profit from collapse in oil prices. – The collapse of oil prices is uncovering a well of opportunities for corporate-bond investors looking ahead after a year of healthy returns and record-high debt sales.


High-Yield Bonds

Bloomberg: – Traders dive into junk-bond ETF hedges on oil concerns. – Plunging oil prices have left options traders bracing for more losses in high-yield debt. Options hedging against swings on an exchange-traded fund tracking the bonds cost the most since 2010 versus those on an ETF following Treasuries and were at an almost six-year high relative to contracts on a Standard & Poor’s 500 Index fund. Investors are wary of the debt after crude oil sank almost 50 percent since June given the high proportion of high-yield bonds from energy companies.

Hawkinvest: – 2 high yield investments that could double your money in about 7 years. – A recent pullback in the high yield sector has created another buying opportunity. Buying pullbacks in junk bonds and the high yield sector has been generally rewarding over the past few years. Interest rates are not likely to rise significantly in 2015, and that means the hunt for yield continues. Investments that yield about 9.5% or more can double your money in as little as 7 years.

Income Investing: – High-yield bonds on pace for 2.5% return in 2014. – The wild ride for junk-rated corporate bonds in 2014 saw the market gain nearly 6% by midyear, then lose all of that (and then some) by mid-December, and then bounce back strongly over the final two weeks of the year to leave the market’s 2014 return at 2.5% heading into the last day of 2014, according to a benchmark Bank of America Merrill Lynch index.


Emerging Markets

FT: – EM portfolio flows suffer sharpest slump since “taper tantrum”. – (Subscription) Portfolio flows into emerging markets (EM) suffered their sharpest slump in December since the 2013 “taper tantrum” as the Russian currency crisis and sliding oil prices intensified risk aversion among both equity and debt investors, according to estimates by the Institute of International Finance (IIF), a global association of financial institutions.

USA Business Daily: – Emerging market bond issuance hits record high in 2014. – According to Thomson Reuters data, total issuance from emerging market borrowers, both sovereign and corporate, amounted to nearly $480 billion in 2014, across 742 deals, compared with $439 billion in 2013 and 725 deals.

WSJ: – Who are the biggest emerging-market dollar borrowers? – (Subscription) A boom in dollar debt in emerging markets risks capsizing a host of companies around the globe as the greenback surges. Which countries are home to the biggest borrowers?


Green Bonds

Globe and Mail: – Income investing: Green bond market is ‘exploding’. – Investors who want to add environmentally friendly investments to their portfolio without embracing a lot of risk don’t have much choice. Most renewable energy stocks have taken wild swings in the past few years.


Catastrophe Bonds

Artemis: – No Odile loss for MultiCat Mexico 2012 catastrophe bond. – Investors in the MultiCat Mexico Ltd. (Series 2012-1) Class C catastrophe bond notes will not face any loss due to September’s hurricane Odile as calculation made using the latest data from the NHC deems the parametric trigger had not been triggered.

Artemis: – Cat bond price stabilisation becoming more evident: Moody’s. – Signs that the catastrophe bond pricing environment has become more stable are becoming increasingly apparent as the end of 2014 approaches and the pace of price declines continues to slow, according to a report by ratings agency Moody’s.


Investment Strategy

CNN: – The best way to invest for retirement income. – When it comes to tapping savings in retirement, many retirees fall into what I call the”Income Investing Trap.” They tilt their portfolios almost exclusively toward “income” investments – dividend stocks, high-yield bonds and annuities. They figure this is the best way to assure a safe supply of spending cash throughout retirement. Big mistake.

Matthew Sauer: – What do 2014 winners say about 2015? – The yield curve flattened in 2014 as short-term rates increased and long-term rates declined. Utilities benefited from lower long-term rates and is set to finish the year as the best performing sector. The U.S. dollar rally in 2014 looks like the early stage of a much larger rally.

LA Times: – U.S. bull market rolled on in 2014, but investors got pickier. – Investment success in 2014 was mostly about keeping it simple. That may not be a bad way to go in 2015, either.


Bond Funds

Reuters: – U.S. based bond funds post $9.4 bln outflows in latest week. – Investors in U.S.-based mutual funds pulled $9.4 billion out of bond funds in the week ended Dec. 17 on profit-taking following gains in bonds this year, data from the Investment Company Institute showed on Tuesday.

ETF Daily News: – Bond ETFs to generate income for your portfolio. – Though investors have been continuously shifting their exposure to the equity world in the second half of the year thanks to a steadily improving U.S. economy, the fixed income world is also in great shape as a result of global market turmoil.

FA Magazine: – Bond mutual funds attracted more money as equity funds declined in November. – Bond mutual funds saw an inflow of cash from investors running away from equity funds in November, the Investment Company Institute reported Tuesday.

FA Magazine: – Bond mutual funds attracted more money as equity funds declined in November. – Bond mutual funds saw an inflow of cash from investors running away from equity funds in November, the Investment Company Institute reported Tuesday.

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