This Week’s Top Bond Market Stories – May 11th Edition

Best-of-the-BestLearn Bonds: – How dangerous are U.S. Treasury notes and bonds? – A lot has been written and said about how much money U.S. Treasury note and bond investors will lose when interest rates rise in the years to come, as they are expected but not guaranteed to do. However, I have yet to see or hear anything about the risk involved in waiting to exit a Treasuries position or speculating on Treasuries to increase in value in the short-term. On Friday (5/3/13), the yields for the 5-year note, the 10-year note, and the 30-year bond increased by 8.3, 12.1, and 13.8 basis points respectively. This was a very small taste of the risk involved.

Learn Bonds: – Corporate bond market shenanigans you should know about. – Every so often when I am shopping for individual bonds, I notice something unusual that is worth sharing. Last week, when attempting to add to my position in Barrick Gold’s 2042 maturing notes, I experienced something that makes me wish the world of fixed income would share the fully automated nature of the equity markets.

Learn Bonds: – Using Ray Dalio’s 5 principles to reach your investment goals. – Over the weekend I read through Ray Dalio’s principles, which is basically a guide to how to be happy and get things done.  Ironically, the 123 page document written by one of the world’s best investors, doesn’t directly talk about investing at all.  As one might imagine however, many of the principles outlined in the document are as relevant to successful investing as they are to success in your personal and professional life.

Learn Bonds: – JP Morgan calls your preferreds – What to do with the money now. – In today’s low interest-rate environment, it is hard enough to put together a diversified fixed-income portfolio that provides both adequate yields and acceptable credit risk. When corporations decide to call their preferred stock or debt securities, it only makes things more difficult. On Wednesday of this week, JPMorgan Chase will be redeeming nearly $5 billion of trust preferred securities. If you are one of the unfortunate holders of those securities who will now have extra cash you would like allocated to fixed income, what should you do with the money?

Bloomberg: – Berkshire sells debt to buyers Buffett pities. – Berkshire Hathaway Inc.’s $1 billion note sale shows that while Chief Executive Officer Warren Buffett may pity investors who’ve stuck with bonds as yields fall to record lows, he’ll sell them as much debt as they want.

Indexuniverse: – The hottest Bernanke trade in ETFs. – Last week’s big bond ETF inflows makes you wonder just what institutions know about the Fed.

Bubble Bust Investing: – What to do with U.S. Treasuries. – In a recent interview with CNBC, legendary stock investor Warren Buffett had a clear and loud message about U.S. Treasuries: They are artificially priced, and investors can lose a great deal of money holding them at this point. Legendary bond investor Bill Gross seems to think otherwise. His $289 billion fund raised its U.S. Treasury holdings to 33 percent. Which side is right?

Bloomberg: – Gross says bull market in bonds likely ended April 29. – Gross, the founder of PIMCO and manager of the world’s biggest bond fund, has been advising investors to sell riskier assets and buy government debt, including inflation-linked securities and nominal Treasuries as central banks pursue unprecedented stimulus measures. He raised the holdings of Treasuries in his flagship fund in April at to the highest level since July 2010.

FT: – University endowments trim holdings in US Treasuries. – Some of the smartest money in America is getting out of US government debt. Many university endowments have scaled back their holdings of Treasury securities from as much as 30 per cent in 2008-09 to zero in some cases, say people familiar with their investment strategies.

WSJ Money Beat: – Beware the B-word (bubble, not bonds). – In corporate bond markets, the dreaded word “bubble” has become a topic du jour. As it should be. The environment for a bond bubble is ripe, and recent developments suggest one is actively being blown up. This is especially true for junk-rated bonds, issued by companies judged to be the most likely to default.

CNBC: – PIMCO Total Return Fund’s Treasurys holdings jump to 39%. – PIMCO Total Return Fund, the world’s largest bond fund, increased its U.S. Treasurys holdings to the highest in over a year in April, data from the firm’s website showed on Thursday.

WSJ: – High Yield? Not so fast: Junk bond yields fall below 5%. – What’s in a name? When it comes to high-yield bonds, apparently not much. Yields on the Barclays US High Yield Index reached 4.97% on Tuesday, a new low and the first time the index has dipped below 5% in its 30-year history.

David Fabien: – Follow Bill Gross, not Warren Buffett. – As a follow-up to the Berkshire Hathaway investment conference this year, CNBC did a lengthy interview with Warren Buffett and asked him about his opinion on the bond market. To which he replied that bonds are “a terrible investment” right now. While I have always respected the Warren Buffett’s stock picking prowess, I am hesitant to get behind this sweeping proclamation that all bonds are bad for several reasons.

MarketWatch: – Should you avoid junk bonds? Depends on who you ask. – As bond buyers continue to move to the riskier reaches of fixed income in the – increasingly fruitless – hunt for yield, that yield has dropped to record lows. It’s a reflection of the near-record low yields across the bond market, starting with safe haven government debt and moving into riskier asset classes. But it’s also a worrying sign for some bond market investors, who fear issuers are providing fewer bondholder protections. So should you avoid junk all together?

CNBC: – Bearish like Buffett? Some bonds may still be king. – Several renowned investors may have made the case to be more bearish on bonds recently, but one analyst has told CNBC that investors should not shun bonds because they still offer a good insurance policy.

WSJ: – Reaping wisdom on ‘junk’. – In 1977, a band of Los Angeles-based traders led by Michael Milken helped Texas International, an oil company, raise the first “junk” bond. The small issue—$30 million—opened a chapter in the history of finance. From then on, companies with less-than-pristine balance sheets were able to tap capital markets, while investors had the option of betting on securities with higher risks, and potentially higher returns, than traditional corporate bonds. Last week, one of those traders, Leon Black, returned to L.A. and surveyed the landscape 36 years on.

Investing.com: – Is this the top for equities and junk bonds? – Could today finally be the top in US equities and junk bonds? The following charts show that they are both at trendline resistance after terminal patterns, and the British Pound appears to have entered wave 3 of a downward thrust from a four-year triangle vs. the US dollar.

BusinessWeek: – Buffett says bonds are terrible investments today. – Billionaire Warren Buffett says he doesn’t like owning bonds right now, and he doesn’t think average investors should either.

CNN: Jeff Gundlach – Now’s the time to buy bonds. – With Treasury yields near record lows, one contrarian fund manager says now is the time to buy.

ABC News: – SEC says Harrisburg, Pa., misled bond investors. – The U.S. Securities and Exchange Commission says Pennsylvania’s capital city is agreeing to settle new charges that it provided bond investors with “incomplete or outdated” information about its troubled finances.


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