This Week’s Top Bond Market Stories – July 20th Edition

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Learn Bonds: – Municipal-to-Treasury yield ratios signal value. – A seasonal summer boost in the municipal bond market has yet to materialize, but value has emerged and investors are taking notice.

Learn Bonds: – Crazy year for savings bonds in 2013: Junk hauler finds hidden stash while Treasury goes paperless. – Learn Bonds Marc Prosser looks at the state of the savings bonds market so far in 2013.

Learn Bonds: – Here’s a chart the bond bears will want to see. – In recent weeks, along with the sharp rise in Treasury rates, came a chorus of bond bears proclaiming yet again the end of the multi-decade bull market and the ushering in of a new bear market in bonds. It is the same story we’ve heard every year since 2009. Maybe the fifth time will be the charm. But for those who think we are on the cusp of a new multi-decade bear market in bonds, I would like to share the following chart.

Learn Bonds: – Brand new defined-maturity bond ETFs to consider. – When it comes to defined-maturity corporate bond ETFs, Guggenheim’s BulletShares have been the go-to place for investors.  In an environment in which many investors fear rising rates but also aren’t willing or able to create a diversified portfolio of individual bonds, corporate bond funds designed to behave like individual bonds seem like a great idea.  It is such a good idea that BlackRock now wants in.

Washington Post: – Detroit goes bankrupt, largest municipal filing in U.S. history. – Detroit filed the largest municipal bankruptcy in the nation’s history Thursday, marking a new low in a long decline that has left the U.S. automaking capital bleeding residents and revenue while rendering city services a mess.

Wonkblog: – Detroit just filed for bankruptcy. Here’s how it got there. – On Thursday, the city of Detroit filed for bankruptcy — the largest city in the United States ever to do so. To get a better sense of just how Detroit got into such dire financial straits, it’s worth browsing through this May report on the city’s finances and this “Proposal for Creditors” from June. Detroit’s emergency manager Kevyn Orr laid out all the problems and economic headwinds facing the city.

Bloomberg: – Bankrupt Detroit shouldn’t scalp bondholders. – Plenty of analysts are asserting that Detroit’s bankruptcy is a unique case. Its finances are so calamitous, they argue, and its demographic and fiscal spirals so severe, that investors will treat its bankruptcy as a one-off event. So the haircut its bondholders will inevitably take is unlikely to result in significantly increased borrowing costs elsewhere.

WSJ:  – What chapter 9 bankruptcy means for detroit. – Detroit filed for bankruptcy protection on Thursday under Chapter 9 of the U.S. Bankruptcy Code. Here is an explanation of what that means.

Detroit Free Press: – Detroit prepares to file for bankruptcy as soon as Friday. – The City of Detroit is in final preparations to file for federal bankruptcy as early as Friday morning, several sources told the Free Press today.

Mebane Faber: – Is Gundlach right, have bonds bottomed? – A few weeks ago bond king and fellow Angeleno Jeff Gundlach mentioned that he thought bonds were near a bottom. Now I don’t know why his econometric analysis had led him to this conclusion, but history is certainly on his side, and we agree with him.  We used to do a lot of posts on asset classes, drawdowns, and really bad months.

FT: – Rate fears drive convertible bond rally. – Demand for convertible bonds is expanding sharply as fears of rising rates have hit prices in traditional debt markets, while at the same time equity markets are bouncing to record highs.

BusinessWeek: – Where did all the money go? – You can see how much money exited bond funds and money markets funds, about $83B in total. You can also see how little migrated to equities ($300M). So much for the so-called Great Rotation from bonds to equities. Yet the money had to go somewhere, and the Ned Davis team believes a large portion flowed into the banks. Here are the actual numbers for the five-week period ended July 2.

Investment Week: – All conventional bonds are poisonous. – Steve Russell, investment director and manager of the £2.9bn CF Ruffer Total Return fund, tells Investment Week. “Since the crisis, we have not owned a single conventional bond anywhere in the world because we think they are all poisonous. Our entire bond holdings or fixed income holdings have been index linked and only in index-linked bonds of the countries that control their own printing presses, so basically the UK and US, and that is held as our protection against the inflationary outcome that we expect.”

DealBook: – Despite fears, bond market is functioning fine. – How is the financial system faring after the turbulence that swept through the bond market? Pretty well, judging by the latest financial results from Wall Street banks.

Benzinga: – Bond ETFs to cope with rising interest rates. – Rising rates need not chase investors from all bond ETFs. Some have been holding up nicely while others may have been beaten up more than warranted given the ability of those funds to remain sturdy if rates continue to rise. Some examples follow.

MoneyBeat: – ETF investors step up their short game in junk bonds. – After last month’s bond market selloff, many investors are hunting for strategies that can still provide high yields but won’t get hurt by rising interest rates.

Morningstar:  – PIMCO’s income funds at bargain-basement prices. – Investors take note of fund offerings from bond giant PIMCO. However, savvy closed-end fund, or CEF, investors have been (rightly) wary of jumping into PIMCO’s typical CEF offerings because of staggeringly high premiums, despite generally good returns and high distribution payments. Interestingly, two of PIMCO’s multi strategy income funds have not garnered the lavish attention paid to other PIMCO funds and they usually sell at just modest premiums.

FT: – Curb your expectations, warns Pimco’s El-Erian. – Tough times lie ahead for investors and fund managers in an uncertain environment. The U.S. Federal Reserve may ease its emergency bond-buying programme, global economic growth is tepid and markets are volatile.

Christopher Lum Lee: – Reasons to not ditch your corporate bonds. – One reason for keeping corporate bonds in your portfolio is that now is the time that you can capitalize on the mass movement out of bonds and into stocks – specifically by lower principal price and that you’ll be able to collect dividends while you wait for another rotation out of stocks and back into bonds – bringing you principal appreciation as well.

CNBC: – Investors swap vulnerable bonds for property. – A record amount of money poured out of bond funds last month as a spike in global bond yields spooked investors. According to asset managers, property has mopped up a decent amount of the proceeds.


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