Learn Bonds: – Who got hurt the most by the rise in yields? – Over the last month, the yield on 10 year US Treasury has risen from 2.02% to 2.53%, or roughly 25%. The rise in rates has not been triggered by any particular incident, but a general sense that the U.S. Federal Reserve will need to start cutting back on its easy money policy during the next 6 to 18 months. When rates rise, bond prices fall. However, not all bond prices were equally impacted by a rise in Treasury Yields.
Learn Bonds: – Fed funds rates vs. bond mutual funds. – The sky is falling! Well at least it appears to be in the bond markets. I guess we cannot refer to this as a “Great Rotation” being that stocks have been getting hit pretty hard with the Fed’s recent decision to announce that an end of their stimulus efforts is on the horizon. The simple fact is that as interest rates rise, bond prices will fall. However, history has shown that the gloom and doom prediction that is being predicted for bond holders and bond mutual funds today, has not exactly held true in periods of rapidly rising interest rates of the past.
Learn Bonds: – HYD: Here’s how to calculate your true taxable-equivalent yield. – Financial Lexicon looks at the importance of understanding taxable-equivalent yields, private-activity bond interest, and the Alternative Minimum Tax (AMT). An important read for most municipal bond investors.
Learn Bonds: – Misinterpreting the Fed is creating a buying opportunity in bonds. – Investors who are helping to push yields higher are simply giving bond buyers a major opportunity to get long various individual bonds. This is especially the case for the true long-term bond investors willing to purchase single-A- and triple-B-rated bonds currently yielding 5% to 7% and patiently hold them while collecting coupons and ignoring price fluctuations that are largely irrelevant.
Learn Bonds: – A rare opportunity in this municipal bond ETF. – Last week’s post-FOMC-statement selling brought with it some notable dislocations in the world of ETFs. One ETF in particular, the Market Vectors High-Yield Municipal Index ETF (HYD), closed the week at a 5.65% discount to net-asset value, its second largest closing discount ever. The largest ever closing discount occurred on August 8, 2011 at 6.74%.
WSJ: – Fashionable ‘risk parity’ funds hit hard. – Investors who piled into “risk parity” funds, which follow a popular strategy that promises to make money in most environments, are being hit hard by the current market turmoil.
Reuters: – Don’t fear a Puerto Rico downgrade, investor says. – HJ Sims’ Richard Larkin says that, even if Puerto Rico misses this weekend’s budget deadline and is downgraded by the rating agencies, he would still own its non-investment grade municipal bonds.
Muninet Guide: – Where does the municipal bond market go from here. – After the wrenching correction of the last two weeks, both the equities and fixed-income markets have earned themselves a well-deserved respite. Not surprisingly, investors and the financial media are now starting to re-focus on the dramatic interest rate spike and its potentially dampening effect on the economy.
PIMCO: – Bill Gross, Investment outlook. – The tipping point. – Should bond investors abandon ship? And who to believe? The captain of the Fed, the co-captains of the USS PIMCO, or just trust your instincts?
CNBC: – Jeffrey Gundlach: Bond selloff has run its course. – Bond investor Jeffrey Gundlach of DoubleLine Capital said the liquidation of bonds has run its course, in an interview with CNBC.
Mark W. Bertolin: – Junk bonds offer opportunity. – In an interesting turn of events, HYG now appears to have broken its past trend and is tracking inversely to 10 year treasury interest rates. HYG is a bond fund with a current yield of 6.51% that invests in lower grade corporate debt. Logically, if rates climb as represented using the 10-year treasury index TNX, then the junk bond category should reflect lower share pricing.
Money Beat: – What Jeff Gundlach is buying during the bond-market selloff. – High-profile bond fund manager Jeffrey Gundlach has scooped up agency mortgage-backed securities in recent days as many other investors rushed for the exits.
CNBC: – Bond investors were ‘in denial’. – Bond investors that banked on unlimited quantitative easing were “in denial”, according to one asset manager, explaining the “violent” market reaction to the Federal Reserve’s warning that its bond purchasing program could soon be scaled back.
Barron’s: – Muni sell-off ‘excessive’, Expect a correction over next 45 days. – In this blog’s third installment its state of the muni market report this week, we check in with municipal strategists at Citi, who say at this point munis are simply bearing the brunt of problems not of their own making.
Bill Gross: – The fog thats yet to lift. – We agree that QE must end. It has distorted incentives and inflated asset prices to artificial levels. But we think the Fed’s plan may be too hasty.
CFO Journal: – Bond markets get messier. – The bond markets are getting even more turbulent. Credit markets have gotten so messy some investors are having trouble finding people willing to buy what they are selling.
DealBook: – Economists are asking: Did Bernanke tip Fed’s hand? – Is Ben Bernanke being too chatty? That’s the question being put forward by some economists and others about Mr. Bernanke, the normally restrained Federal Reserve chairman, after his comments in May and last week about the economy and the central bank’s plans for eventually backing off its stimulus measures.
FT: – Junk bond investors burnt in Fed retreat. – Those who followed the “close your eyes and buy” strategy that swept through junk bond markets since the start of the year have just had their fingers burnt.
On Wall Street: – Pimco’s Gross shifts family holdings amid selloff in bond market. – Pacific Investment Management Co.’s William Gross, the billionaire who runs the world’s largest mutual fund, is re-jiggering family investments in Pimco bond funds that have been beaten down by rising interest rates.
Minyanville: – Falling stocks and corporate bonds: 5 Charts that explain the connection. – Hiccups in the corporate bond market are usually preceded by a worsening in the credit derivatives space, particularly credit derivatives tied to large financial institutions, and then followed by a rise in investment-grade and high-yield spreads. Here are the charts that tell the story.