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

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Learn Bonds: – How expensive are bonds relative to stocks now? – Even with the recent increase in interest rates, bonds are still far overpriced in comparison to stocks.  This is important to understand in managing your retirement portfolio. It is also important that you are well-prepared to lessen your overweight position in stocks, and increase your underweight position in bonds and/or CDs, as interest rates increase, as is very likely to continue to occur.

Learn Bonds: – Was Bill Gross wrong about Treasuries? – With the recent record outflows from Pimco’s flagship Total Return fund, Marc Prosser looks at whether Bill Gross did call it wrong about Treasuries.

Learn Bonds: – Q2 in review – A tale of the bipolar bond market. – Dictionary.com defines “bipolar” as “characterized by opposite extremes.” In searching for a word to describe the bond market’s behavior during the second quarter of 2013, bipolar seems rather appropriate.

Learn Bonds: – Rising bond yields are a dream come true. – For quite some time, I’ve worried that the U.S. bond market would be mired in a Japanese-like experience of persistently low historic rates. Therefore, the recent rise (and I hope continued rise) in benchmark yields is a dream come true. It allows individual bond investors to look beyond the noise of fears about QE tapering and start to gradually buy longer-term single-A- and triple-B rated bonds in the 5% to 7% range.

Bloomberg: – Least sales since ’11 offer cushion against losses: Muni Credit. – The steepest losses in almost three years for U.S. municipal debt may wind up helping bondholders. Issuers jolted by rising yields are scaling back sales to the slowest pace since 2011, helping limit declines in the $3.7 trillion market.

FT: – Tapering signals suggest we’ve seen the best. – We should expect returns to be lower from here than in the recovery phase. For investors, that means keeping down the cost of investing is even more important if returns overall are low.

Bloomberg: – Pimco sells provinces after worst rout since ‘94. – Provincial bonds, touted two months ago by Pacific Investment Management Co. as a way to offset low government bond yields, are losing favor at the world’s biggest bond-fund manager amid their biggest quarterly loss since 1994.

Bloomberg: – Gross caught in TIPS trap Gundlach sidestepped in tumble. – PIMCO owns about 10 percent of the TIPS market, according to Morningstar Inc., Bill Gross’s success is tied in part to an asset class fellow bond manager Jeffrey Gundlach has avoided.

ETF Trends:  – Bond ETF liquidity risks: Facts vs. fiction. – After the financial crisis, investors and journalists are justifiably on guard for that next systemic risk lurking just under the surface that could throw markets into chaos again. The rapidly growing and much-hyped ETF market is an inviting target.

Business Insider: – Here are 3 reasons why you should still own bonds. – Amid concerns of a Fed taper, investors pulled a record $23.3 billion from bond funds in the week ending June 26. Bank of America’s Michael Hartnett dubbed it a ‘bond market liquidation’ in a note to clients.

Quartz: – America’s bond king just had his worst quarter ever, thanks to a wily Ben Bernanke. – It’s not always good to be the king. These have been tough days for Bill Gross, whose position as skipper of the megalithic Pimco Total Return Fund—the world’s largest mutual fund with over $295 billion in assets—has earned the camera-ready manager the nickname of “Bond King,”. But as it turns out, the Pimco Total Return Fund has had some of its worst months on record recently. Including both interest payments and capital losses, the fund was down 2.6% in June. What does this mean? The short version is that the Bond King—and his underlings—failed to foresee a significant shift coming from the Federal Reserve.

The Capital Spectator: – The rise of real yields. – It was obvious as far back as this past April that the positive connection between stocks and the Treasury market’s inflation forecast in recent years was coming apart. As the weeks rolled on and the divergence persisted, it was also clear that the break signaled a substantial change in the macro-market outlook. Exactly what was changing wasn’t conspicuous early on, but it now appears that we’re finally at the point of transitioning to something approximating normality. It’s been a long time coming. It looks like the end of the world to some, but the apocalyptic narrative in this case is one more overbaked view of the future until the numbers tell us differently.

MarketWatch: – How munis were saved by the retail investor. – As benchmark yields in the municipal bond market spiked and then eased over the last two weeks, retail investors played a key role in the reversal. That’s evident in the record volume of trades recorded by retail investors as the market bottomed out.

MarketWatch: – Bonds throw ‘taper tantrum’ and fund buyers break. – Investors in bond mutual funds will have to tread carefully heading into the second half of the year.

Minyanville: – TIPS are still bonds: An ongoing lesson. – Do not become so fixated on inflation risk that you forget all about interest rate risk.

Econbrowser: – The all-powerful Fed. – The conventional wisdom is that the big jump in interest rates since the beginning of May is the result of a poorly conceived or poorly communicated shift in policy by the U.S. Federal Reserve. The conventional wisdom is wrong.

 

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