This Week’s Top Bond Market Stories – June 15th Edition

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Learn Bonds:  – The true U.S. unemployment rate is about 11.3%. – The unemployment rate that is almost always quoted and that the Fed is striving to lower is not the true unemployment rate. It is a subset of the true unemployment rate. The true unemployment rate is much larger and somewhat unknown. In this article, I will provide an approximation of what the true unemployment rate is and define how the U.S. can obtain a true unemployment rate.

Learn Bonds:  – Should you buy Stanford or Apple bonds? – Some investors may be deliberating long-term bonds for many reasons, though the decision is tough because there is a likelihood (or should I say certainty) low coupon, long-term bonds will lose value as treasury rates go up. Nevertheless some investors may have specific reasons to allocate to low yield, high credit quality fixed income in the next few months — they may be looking for something “safe.” With that in mind here’s an in depth look at the investment grade bonds of Apple AA+ and Stanford AAA.

Learn Bonds:  – High-yield bond spreads finally start to widen. – For investors with money to put to work, it is a good thing that spreads have started to widen. Let’s hope it continues over the coming days and weeks. In the meantime, tighten up your watch list of bonds to buy and be ready to act at a moment’s notice—for just as quickly as spreads widen, they can also narrow.

Learn Bonds:  – One way to find value in today’s low-rate environment. – Despite the rise in benchmark Treasury rates during the month of May, it is still difficult to find the corporate bond market wildly attractive at today’s levels. With market-wide spreads still at less-than-attractive levels and broader-market yields not far off all-time lows, it is quite challenging to find a lot of value. But it can be done.

Learn Bonds:  – Time to buy munis. – After a difficult month of May, municipal bond investors are now faced with what has historically been a difficult start to June. On a positive note, the start of summer in late June typically ushers in one of the more attractive times of the year to own municipal bonds.

PIMCO: – Which way for bonds? – Bill Gross PIMCO founder and co-chief investment officer, answers the questions most bond investors have on their minds right now.

Bloomberg: – PIMCO joining sellers spurs steepest monthly losses. – The $3.7 trillion municipal market is poised for its first two-month slide since 2011 as Bill Gross, manager of the world’s biggest bond fund, is joining individual investors in reducing holdings of local debt.

CNBC: –  5 bond questions to ask your financial advisor now. – For investors unsettled by the unrest in the bond markets and the performance slide in emerging market bonds in particular, here are five questions you need to ask your advisor, and of yourself. You’ll probably find that amid volatility, reverting to core principles of investing and risk are the best benchmark for action.

The Big Picture: – The bond market and inflation. – For the last few weeks we have seen bonds selling off viciously as a result of confusing communications from the major central banks. Bonds may be reacting to some changes in inflation expectations, but the inflation evidence does not support this view. In our opinion the bond market adjustment is too extreme and has created bargains in bonds.

Barron’s: – Treasuries now a ‘Ponzi Market’ – Guggenheim CIO. – We’ve heard various riffs on how the Federal Reserve is distorting the Treasury market, but someone’s finally gone far enough to call that market a Ponzi scheme.

CNBC: – As markets churn, bond funds start ugly dog contest. – What to do with your bond and emerging market funds? It’s the question I’ve been asked most often in the past two weeks. With further declines in prices today, it’s starting to look ugly. The numbers look since the beginning of May certainly aren’t pretty.

Reuters: – Investing in bonds while rates are rising. – The real problem with today’s low interest rate environment, is not that interest rates are bound to go up sooner or later. That’s a good sign: it’s what happens when an economy goes back to normal. As Goldman COO Gary Cohn said, “we have an entire generation of investors who have never experienced a rising rate environment.” Most of those investors are looking after the money of individuals who consider bond funds to be low-risk investments, and a lot of them are going to end up doing very stupid things as interest rates start to rise, losing a lot of their investors’ money.

WSJ: – How to buy muni bonds. – The complete guide to buying muni bonds in the most efficient way, without paying large commissions to your broker.

Bloomberg: – Most withdrawals of ’13 ignore history of July gain. – Mutual-fund investors pulling the most funds since December from the $3.7 trillion municipal market are creating an opportunity for buyers of individual local bonds as tax-exempt yields reach a 15-month high.

FT: – The Fed has turned markets upside down. – Investors in the Treasury market today are not there for the income but for the prospective capital gain should yields decline.

The Economist: – The bad news of rising real yields. – An inevitable consequence of the falling inflation and rising bond yields. The U.S. and eurozone are no longer inflating away their debt. One aim of Abenomics is surely to drive down real yields by allowing inflation to rise to 2% without a concomitant rise in nominal bond yields, which would make the financing of government debt look perilous.

Quartz: – People are now running from bonds. – The financial crisis upended a lot of things about the established order. Swaggering bankers were brought to their knees. Spendthrift Americans started saving—briefly. A decades long deregulatory fetish in Washington fell out of fashion. And people started dumping stocks, and buying bonds. But that was then, and times are changing.

Business Insider: – A strange occurrence in the derivatives market suggests the bond sell-off is different this time. – The phrase “this time is different” doesn’t usually spark very positive reactions. But I don’t care because there’s one thing about the market these days that makes me think that something is strange when compared to previous bond market sell-offs.

NY Times: – For Retirees, a million-dollar illusion. –  For people close to retirement, the problem is acute. The conventional financial advice is that the older you get, the more you should put into bonds, which are widely considered safer than stocks. But consider this bleak picture: A typical 65-year-old couple with $1 million in tax-free municipal bonds want to retire. They plan to withdraw 4 percent of their savings a year — a common, rule-of-thumb drawdown. But under current conditions, if they spend that $40,000 a year, adjusted for inflation, there is a 72 percent probability that they will run through their bond portfolio before they die.

WSJ: – What’s eating your munis? – Municipal bonds are beginning to look tempting—but investors who buy munis in haste can unwittingly hand over their first year’s worth of income to their broker. Fortunately, with a few simple steps, you can control that risk and maximize your net return.


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