This Week’s Top Bond Market Stories – June 7th Edition

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LearnBonds: – Why are European bond rates at historic lows? – It has been a long time since European Bond Rates have been so low.  In fact, in some cases one has to go back beyond the Napoleonic Wars in the early nineteenth century to find longer-term interest rates so low. Question is, why?

LearnBonds: – CDs offer attractive relative value. – In an investing world in which there is very little value to be found, investors who are desperate to put cash to work will have to settle for relative value.  By relative value, I am referring to the attractiveness of one investment relative to another, rather than relative to historically attractive valuations and yields.  Concerning fixed income, relative value can be found in 7- to 10-year certificates of deposit (CDs).

LearnBonds: – Setting the stage for long term rates which are higher than today’s levels. – Yesterday kicked off a busy week for economic data (both at home and abroad). This week we will get manufacturing data, The Fed’s Beige Book report and (probably most importantly) employment data. If we are going to see volatility in June, this will probably be the week we see it.

LearnBonds: – Asset Allocation – How much of your portfolio should be in bonds? – One of the most critical aspects of portfolio management is Asset allocation . It has been often researched and opined that the types of assets one invests in is more important for long-term total return than specific securities selected. Of course since most investors have a wide range of strategies for their money, total return may not the penultimate goal.

LearnBonds: – Dow Dividends – is AT&T stock worth the price? – AT&T pays a 5.2% dividend, but is the stock a buy and hold for retirees? Lawrence Myers takes a closer look.


Municipal Bonds

Yahoo.com: – Looking for yield? Don’t go here. – Everyone is yearning for yield, and that has helped the once struggling muni market. Lipper data shows $3.1 billion has been invested into tax-exempt funds this year. That’s up from the previous year and marks a significant departure from the excessive selling that plagued munis for much of last year. So are they a buy?

Morningstar: – Where to look for cheap muni funds. – As a whole, municipal-bond closed-end funds are not screaming bargains at current valuations, but they look fairly cheap on a relative basis.

WSJ: – Municipal-bond website gets makeover to help buyers. – The Internet storehouse of free municipal-bond data and documents is getting a makeover, adding tools and information for retail investors in a market critiqued for years as opaque and unwieldy.

Reuters: – Chicago’s UNO charter schools defrauded bondholders, SEC says. – A Chicago charter school operator lied to holders of $37.5 million of municipal bonds about conflicts of interest and risked having to liquidate its schools, the U.S. Securities and Exchange Commission said on Monday in charging the operator with defrauding investors.

The Select Group: – The mood of municipal bonds. – When one thinks of municipal bonds, generally the next thought is…boring.  Bonds are usually boring; adding municipal to the mix should make them more so.  Bonds have a job to do and for most of the past several decades they have performed.  Primarily we have the trend to thank.

BlackRock: – Municipal Market Update. – May was another positive month for the municipal market, and the second best May in a decade, resulting in a year-to-date (Ytd) return of 6.18%. The upward bent in performance has been driven almost entirely by technicals, as investors seem to be less focused on fundamental factors. We continue to emphasize careful security selection and nimble sector rotation, with the ultimate goal of preserving the Ytd gains.

Bloomberg: – SEC’s Gaunt sees fines for muni bond breaches: Five Questions. – The head of the U.S. Securities and Exchange Commission’s unit overseeing municipal bonds and pensions is urging local governments to come clean if they failed to keep investors informed about the state of their finances.

Bloomberg: – Road to disney world lures vanguard as debt yields sink. – A central Florida county is building a toll road through swampland near Walt Disney World to speed the commutes of local workers, financing the project by selling low-rated debt to yield-hungry investors.


Bond Market

Reuters: – Search for yield has insurers running to alternatives. – The rock-bottom yields on offer in the corporate bond market are putting pressure on investment returns for U.S. life insurers and driving them into riskier and less liquid investments such as private equity and infrastructure debt, insurers said.

Bloomberg: – Bond yields lowest since Napoleon are no comfort to europe amid deflation fight. – Europe’s lowest government bond yields since the Napoleonic Wars are signaling investors want more action from Mario Draghi.

Businessweek: – Green bonds seen tripling to $40 billion on new entrants. – With more than $16.6 billion issued worldwide this year, 2014 is on track to surpass $40 billion in green bonds as more companies issue the debt to finance clean energy projects, according to a report by Bloomberg New Energy Finance.

Bloomberg TV: – Bond dealers fight for bond sales assignments. – Bloomberg’s Lisa Abramowicz reports on bond underwriting and U.S. corporate bond sales on Bloomberg Television’s “Bottom Line.”


Treasury Bonds

Barron’s: – Yields fall, reasons abound. – A group of blind men trying to describe an elephant might have better luck than a gang of bond analysts trying to explain exactly why Treasury yields keep falling.

WSJ: – U.S. Government bonds rise in May. – Treasury bonds posted the biggest monthly price rally since January, though prices pulled back Friday as investors cashed out some chips.

4Traders: – Treasury bonds pull back for fourth session. – Treasury-bond prices pulled back for a fourth session on Tuesday as investors continued to cash chips out of the market that had rallied in May.

Wall St Cheat Sheet: – Should you buy the pullback in Treasury bonds? So herein lies the conundrum. It seems that everybody is bearish of bonds because there are so many obvious reasons to be bearish of bonds. But everybody is therefore on the same side of the trade, and in such situations it often makes sense to take the opposite side. The safe or the “easy” strategy is to simply stay out of the bond market and go neither long nor short.

MV Pro: – Treasuries: Real yields flash a warning sign. – This post is two-faceted as I will be looking at two different recent developments. The first highlights the causa proxima behind the most recent sell-off in Treasuries. The second is broader — I take a look at recent highly correlated changes in different asset classes that smell very funny when considered together.

Reuters: – U.S. gov’t bonds seen as a bargain after ECB rate cut. – Do not be surprised if U.S. Treasury yields fall in coming days after the European Central Bank cut short-term interest rates to near zero on Thursday.


Investment Grade Bonds

Market Realist: – Why AT&T could add up to $7.5 billion to the investment-grade market. – AT&T, could add up to $7.5 billion to the investment-grade bonds market, as it is about to issue new debt to fund its $49 billion acquisition of DirecTV. The issuance could be the fifth largest investment-grade corporate debt offering in the U.S. this year.

Businessweek: – International paper leads $10 billion of company bond offerings. – International Paper Co. (IP:US) led more than $10 billion of corporate bond sales in the U.S. today, the most in almost two weeks, as relative yields fell to the lowest level in seven years.

Eric De Groot’s Insights: – Long term charts corporate bonds spreads updated. – Concentration of capital within the corporate bond market serve as proxy for risk appetite and liquidity.  Extreme narrow of spreads, readings below -1.96, suggests complacency and liquidity. Since money flows from one extreme to another, complacency and liquidity are usually followed by panic (fear) and illiquidity.

Businessweek: – Verizon leads jump in bond sales with summer lull looming. – So much for the unofficial start of summer. Corporate-bond sales in the U.S. since the Memorial Day holiday are off to the fastest pace in five years as companies from Verizon Communications Inc. to Baytex Energy Corp. lead more than $48 billion of issuance.


Junk Bonds

Income Investing: – Leverage is rising, but junk bond defaults not yet imminent – Citi. – Citi this week explores where we are in the current credit cycle and says that absent some unexpected shock, it expects defaults to remain very low into 2016. While leverage is rising, it still lags peak levels seen in 2006 and 2007.

Market Realist: – Must-know: Will Tesla Motors’ issuance be adding to the junk bond flows? – It appears that Tesla Motors (TSLA) will now be adding to the high-yield bonds segment flows with any new debt issuance.

Kiplinger: – Junky bonds deliver rich yield in this actively managed ETF. – he vast majority of exchange-traded funds track an index and charge rock-bottom fees. Advisor Shares Peritus High Yield is one of a rare breed of ETFs that does neither—without any harm, so far, to its shareholders. Over the past year, Peritus outpaced the average junk-bond ETF by 3.8 percentage points.

Globe and Mail: – High-yield debt: The best of bonds and equities. – Albert Einstein referred to compound interest as the eighth wonder of the world. Unfortunately for investors, interest is currently compounding at rates close to an all-time low.

ETF Trends: – Fed speak reignites love for big junk bond ETF. – Buoyed by expectations that higher interest rates are not an imminent scenario, investors are returning to some of the largest high-yield bond ETFs even as yields drop.

Forbes: – Retail-cash inflows to high yield bond funds contract, inflow solely from ETFs. – Retail-cash inflows for high-yield funds totaled $302 million in the week ended June 4, according to Lipper. While positive for a fifth consecutive week, it’s notable that the infusion came solely from exchange-traded funds, with a technically $26 million mutual fund outflow blown out by an inflow of $327 million to the ETF segment.


Emerging Markets

Columbia Management: – From tactical to core – The case for emerging market debt. – For many investors, emerging market debt could be viewed as a core-portfolio holding rather than a short-term tactical investment.

FT Adviser: – Beyond tapering: Divergent emerging market trends. – Emerging markets have struggled since the U.S. revealed plans for the ‘tapering’ of its quantitative easing programme last year, as many emerging markets had benefited from inward investment as a direct result of the looser monetary policy.

Hedge Fund Journal: – EM debt still offers attractive returns. – At the recent BNY Mellon fixed income conference in Paris, Insight Investment’s Colm McDonagh and Standish’s Alexander Kozhemiakin, outlined why emerging market debt should still be considered by investors despite recent volatility.

Investors.com: – Emerging markets led taxable funds in May; Munis up too. – Taxable bond investors of all stripes scored gains in May. Investors most focused on yield crowded into emerging markets debt funds. Hard-currency funds, typically issued in U.S. dollars, led the way, rising 2.83% on average in May, according to preliminary Lipper Inc. data.

Bloomberg: – Emerging-market local debt cheapest since 2008. – As bond investors have returned to emerging markets in recent months, they’ve focused their buying on foreign debt and balked at purchasing local notes. That’s about to change, according to Standard Life Investments, the money-management arm of Scotland’s biggest insurer.

Bloomberg: – Emerging-market local debt cheapest since 2008. – As bond investors have returned to emerging markets in recent months, they’ve focused their buying on foreign debt and balked at purchasing local notes. That’s about to change, according to Standard Life Investments, the money-management arm of Scotland’s biggest insurer.


Catastrophe Bonds

Palm Beach Daily: – Should you bet against Florida hurricanes? – As hurricane season starts today, Florida’s own Citizens Property Insurance is sponsoring the largest single catastrophe bond issue in history.

CNBC: – Disaster bond market set to balloon 150% by 2018. – The $20 billion catastrophe bond market is set to grow some 150 percent in the next four years, as bond issuers take on a new range of perils and investors continue the hunt for yield, data from BNY Mellon shows.


Investment Strategy

Kiplinger: – The bond rally isn’t over. – Bonds are no riskier today than they were a year ago. If you own them for current income and diversification, stand firm.

Citywire.co.uk: – How would eurozone QE affect global bonds? – Pimco is tipping emerging market sovereigns as a potential beneficiary of any European Central Bank-led quantitative easing (QE), as markets eagerly await the ECB meeting later today.


Bond Funds

ETF Trends: – State Street, Gundlach to partner on active ETF. – State Street’s (NYSE: STT) State Street Global Advisors, the second-largest U.S. issuer of exchange traded funds, and Jeffrey Gundlach’s DoubleLine Capital LP are partnering to launch an actively managed fixed income ETF.

NASDAQ: – Falling interest rates boost bond ETFs. – The yield on the 10-year U.S. Treasury fell to an 11-month low on Wednesday and the drop continued into Thursday — as the yield is on the verge of breaching the 2.40 percent level.

Bloomberg TV: – Why size matters in bond fund performance. – Bloomberg’s Alix Steel and Lisa Abramowicz examine how size impacts bond fund returns. The speak in “On The Markets” on Bloomberg Television’s “In The Loop.”

William Baldwin: – Best ETFs: Short-term bond funds. – You’re likely to be particularly conscious of costs in a short-term bond fund, since the yields are so tiny that you’re at risk of getting a negative return.

Morningstar: – Investors back bond ETFs. – Unlike active investors, ETF traders are demanding fixed income assets. Why is there a divergence between active and passive investment?

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