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This Week’s Top Bond Market Stories – June 1st Edition

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best-of-week-logoLearn Bonds: – Why is SavingsBonds.com selling CDs? – With saving bonds rates so low compared to a very similar much higher yielding alternative (CDs), its hard to get people excited about investing in them. As a result SavingsBonds.com has turned to a higher rate product to engage the interest of their audience. However, I would like to suggest two ideas to SavingBonds.com to re-engerize interest in investing in Saving Bonds.

Learn Bonds: – The US bond market may be much different than you think it is. – The U.S. bond market may be much different than you think it is. When you get your information piecemeal, and you never consume a good overview, things tend to seem much different than they actually are. Specifically, in this article, I will focus on amounts outstanding by debt type, versus trading volumes by debt type, debt holders by debt type, and other aspects.

Learn Bonds: – 20 individual bonds yielding over 5%. – Even in today’s low-interest-rate environment, individual bonds of moderate credit risk can still be found with yields above 5%. Not surprisingly though, in order to realize those types of yields, investors must purchase longer-term bonds and be willing to hold them for many years to come. For a true “long-term” bond investor with the multi-decade goal of capturing 5% or 6% returns from a bond portfolio, having exposure to longer-term individual bonds can make that possible, even in today’s difficult-yield environment.

Learn Bonds: – Are you really a long term bond investor? –  When it comes to investing, there are millions of people who would describe themselves as “long-term investors.” This description generally refers to someone who has a time frame of many years (think decades) and is willing to ride the ups and downs of the financial markets. While I hear this phrase most often used regarding equity investors, it can apply to fixed-income investors as well.

Business Insider: – BOFA: ‘Risk of a bond crash is high’. – Bonds have been tumbling for most of the month, and most analysts warn that it could get even uglier.

MarketWatch: – No such thing as risk-free investment. –  Chuck Jaffe says “There’s no such thing as a “risk-free return,” and that it’s not some “right now” problem based on the level of the market or the lousy returns of bonds, but that it’s about how risk works”.

WSJ: – Bond investors break pattern, dump ‘junk’. – A selloff in junk bonds is fueling fears among some investors that the best days of the bond boom may be in the past.

MuniNetGuide: – The real risk in munis. – State finances overall are benefiting from rebounding revenues and pension and OPEB funding issues are being addressed at statehouses around the country. The record-setting stock market has also restored asset values in many of these pension plans, thus providing some short-term funding pressure relief. Unfortunately, even as credit concerns abate for the current economic cycle, there are still more potential ways to lose money in munis than from actual default.

Reuters: – Low default rate, growing risk receptivity. – The trailing 12-month U.S. high yield default rate remains modest – 1.8% through April – extending a three-year run at well below the long-term average annual rate of 4.6%, according to a new Fitch Ratings report. But history shows that the default rate can remain low even as credit quality deteriorates.

Reuters: – Moody’s says Puerto Rico road bonds may be downgraded. –  Moody’s Investors Service said on Wednesday it may reduce its A2 rating on $86.1 million worth of Puerto Rico Highways Authority GARVEE bonds because the Caribbean island tapped a reserve fund to pay debt service on the securities.

Money Beat: – To cheer or fear rising bond yields. – Government bond yields have jumped over the past month or so, most notably in Japan and the U.S. In the sense that rising yields herald a return to normal economic growth, this is a positive outcome. But there are also reasons to worry too that an excessively fast rise in yields could well undermine that same good news.

Adviser Perspectives: – Did Apple outsmart investors. – Was the timing almost perfect by Apple, coming to the market 30 days ago, right before the 10-year yield rallies 30%? So far it looks like Apple had great timing in selling these bonds.

ETF Trends: – Is the party over for high-yield emerging market bond ETFs? – ETFs tracking dividend-paying sectors sensitive to interest rates such as utilities and REITs have been hurt by rising Treasury yields and talk the Federal Reserve may soon begin tapering its bond purchases. Can investors add emerging market bond ETFs to the list of recent casualties?

ValueWalk: – What the market expects for QE and what the fed will do about it. – Volatility could be ahead in the bond markets as the Federal Reserve ponders what to do about its quantitative easing program. Surveys indicate that a majority of participants in the market don’t see the Fed’s plan as ending until the second quarter of next year. That means they expect officials to keep buying $85 billion per month in bonds until then.

New Statesman: – If you own stocks or bonds you should be acutely interested in the Fed right now. – So what is the Fed up to? My view would be that they know QE has played a highly significant role in powering markets higher, they fear bubbles, they fear the reaction when they start to tighten, but they know it’s much like a visit to the dentist-the longer you put it off, the more painful the consequences. Above all perhaps, they fear a repeat of 1994, when unexpected tightening caused a bond market rout. So they’re trying to let us know as subtly as possible that they’re thinking about making a dentist’s appointment, and that means the rallies probably only have a month or two to run.

Business Insider: – Ben Bernanke has one more incredibly powerful tool he hasn’t used yet. – Other than printing money, there is still one tool mentioned by Bernanke that has not been used, i.e., pegging bond yields.

 

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