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

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Learn Bonds: – Dear Janet Yellen – Stocks are the cause of rising wealth disparity. – While financial pundits and politicians always seem to put a positive spin on the stock market’s role in society, in fact, it could be argued that stocks are among the leading causes of wealth disparity.  Basic math will help illustrate my point.

Learn Bonds: – Invest in the USA. – Instead of reaching for yield in aggressive foreign asset classes, investors should understand that there is no better place to invest than the U.S. and no better economy (structurally and fundamentally).

Learn Bonds: – Learn to be a good judge of bond risk. – Investors are constantly in search of securities commensurate with the amount of risk they are willing to take. While bonds cannot be classified as risk-free given the omnipresent potential for default, they are a contractual obligation between borrower and lender. And since bonds sit higher in a corporation’s capital structure than equity shares, they are generally viewed as more secure than common stock.

Learn Bonds: – Rauner inherits Illinois downgraded by bond market. – To correct the finances of the lowest-rated US state, Illinois Governor-elect Bruce Rauner won a mandate. Investors agree that the newly elected Republican Governor has a tremendous amount of work to do in order to prevent a credit downgrade closer to junk.

To see a list of high yielding CDs go here.

 

Municipal Bonds

Bernardi Securities: – Detroit and Stockton emerge from Chapter 9 – A few facts, observations and takeaways. – Both Stockton and Detroit emerged from bankruptcy last week. In both cases, judges ruled that each plan as presented is fair and feasible to all parties involved. There are clear winners and losers as a result of these decisions. And much remains unresolved with many unanswered questions. We take a closer look at each decision and what it means for bondholders.

Governing: – A green bond for public pensions. – Green investments are the current darling of Wall Street. The market for them is expected to exceed $40 billion this year, according to Bloomberg. But there’s one huge institutional player who’s being left out: state and local pension plans.

Income Investing: – Detroit bankruptcy exit plan is bad for muni investors – Moody’s. – The two biggest rating agencies are taking pretty different views on the impact of Detroit’s bankruptcy exit plan that a judge just confirmed today.

Bond Buyer: – SEC’s top cop: More muni enforcement, not less. – The municipal market should expect increased attention from the Securities and Exchange Commission’s enforcement division, with a focus on pension fund abuses and pay to play violations, and undisclosed conflicts of interest, the SEC’s top cop said Monday.

Income Investing: – Detroit bankruptcy ‘all negative’ for muni investors. – The outcome of the Detroit case was so bad that it prompted Matt Fabian of Municipal Market Advisors today to label the situation “all negative” for muni investors, particularly in the state of Michigan, adding that “takeaways for the municipal market from Detroit’s bankruptcy are uniformly negative.”

 

Bond Market

All Star Charts: – Why Economists will get bonds wrong again, – One of the things that has consistently brought a smile to my face throughout 2014 is how wrong Wall Street economists have been on interest rates this entire year. Next year I believe economists will get it wrong again. Rates will stay lower for longer. The best way to express that, in my opinion, is to stay overweight higher dividend paying stocks and continue to buy any weakness in US Treasury Bonds, particularly on a relative basis to other countries’ debt.

MarketWatch: – Fitch’s ‘inside credit’: U.S. banking outlook, bond market liquidity & Alibaba’s rating. – This week’s edition of ‘Inside Credit’ features top stories including Fitch’s U.S. banking outlook, the increasing role of asset managers in bond market liquidity, and Alibaba’s new rating.

Businessweek: – Who’s afraid of Fed raising rates? Not these bond buyers. – For all the talk that U.S. Treasuries will tumble once the Federal Reserve starts to raise interest rates, investors in the longest-dated debt securities are finding little cause for concern.

FT: – ECB impotency makes eurozone stagnation inevitable. – (Subscription) Yields in the eurozone sovereign debt markets have fallen to such low levels that they are, in effect, predicting recession and the incipient Japanification of the eurozone. At the same time yields on eurozone corporate bonds have slavishly followed sovereign bond yields downwards this year despite the fact that recession would normally imply increased credit risk, more corporate defaults, falling corporate bond prices and rising yields. How can this apparent contradiction be rationalised?

MarketWatch: – Bond market liquidity seen moving toward asset managers. – Asset managers are planning to hold more cash and large liquid bonds as broker/dealers’ importance in providing liquidity to the fixed income markets has diminished, according to a Fitch Ratings survey of major asset managers. The changes are a natural offshoot of banking regulations that have reduced broker/dealer inventories of corporate and municipal bonds.

 

Treasury Bonds

Zacks: – 5 Top-rated government bond mutual funds to buy now. – 5 top rated government bond mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect these mutual funds to outperform their peers in the future. To view the Zacks Rank and past performance of all government bond funds.

Elliott Wave: – U.S. Treasuries: What happened on October 15? – High-frequency trading may have been one reason for the turmoil. Or was it something else?

Bloomberg: – Pimco cuts government-related debt in total return fund. – Pacific Investment Management Co. decreased holdings of Treasuries and U.S. government-related debt in its flagship fund during October, the first month after co-founder Bill Gross left, to the lowest level in a year.

Reuters: – Bond prices edge higher after new supply, retail sales eyed. – Nov 13 (Reuters) – U.S. Treasury debt prices rose slightly on Thursday as some buyers returned to the market following the end of this week’s $66 billion in new supply, while hesitation ahead of Friday’s U.S. retail sales data limited gains.

 

Investment Grade Bonds

FT: – Now is the time to look at corporate bonds and equities. – (Subscription) Is macroeconomic policy opening the door for income opportunities in Europe?

Morningstar: – Credit Spreads continue to lag equity rally due to abundance of new issue volume. – The average spread of the Morningstar Corporate Bond Index widened 2 basis points and ended the week at +126. In the high-yield sector, the Bank of America Merrill Lynch High Yield Master II Index widened 6 basis points to end the week at +436.

CNBC: – Is Apple disrupting the U.S. bond market? – Why are U.S. companies rushing to Europe? While companies with operations in Europe could have natural reasons to raise money there, there’s another motivation that’s purely financial. Yields on investment grade bonds denominated in euros are about 1.6 percentage points lower than similar bonds priced in dollars, according to data from Citigroup. That’s the widest gap since 2006.

MSN: – Corporate bond buying: A ‘good opportunity’? – Louis Gargour, chief investment officer at LNG Capital, discusses whether the time is right to buy corporate bonds.

MSN: – Corporate bond buying: A ‘good opportunity’? – Louis Gargour, chief investment officer at LNG Capital, discusses whether the time is right to buy corporate bonds.

 

High-Yield Bonds

InvestorPlace: – The Fed can’t mess with these 3 high-yield investments. – High-yield investments have been in fashion over the last few years mostly because the income potential elsewhere has just been miserable. But while interest-bearing assets like government and corporate bonds aren’t exactly high-yield investments, it’s worth noting that the returns have been pretty handsome in 2014 nonetheless.

Income Investing: – Junk bonds set to end year with a rally – BofA. – Bank of America Merrill Lynch‘s high-yield strategy team reiterates its generally bullish outlook in its latest research report today, saying the junk-bond market is poised to end this year on a high note, provided volatility doesn’t get in the way. From BofA’s Michael Contopoulos and his team.

Market Realist: – Why high yield debt is staging a comeback in the capital markets. – Issuance in high yield or junk bond markets has staged a recovery over the past three weeks. Market conditions strengthened and bullish economic data turned things around for junk bond issuers.

Bloomberg: – Junk bond rebound? Wall Street titans at odds over answer. – The woes in the junk-bond market are getting opposing interpretations from Goldman Sachs (GS) Group Inc. and AllianceBernstein LP.

Bloomberg: – Alibaba said to seek $8 billion in bond for loan repayment. – Alibaba Group Holding Ltd. (BABA) is planning to raise as much as $8 billion as soon as next week in its first U.S. bond sale, just two months after the Chinese company completed the biggest public stock offering ever, people with knowledge of the matter said.

 

Emerging Markets

IFR Asia: – Frontier sovereigns eye Thai bonds. – Two of South-East Asia’s frontier nations are planning to offer their first international sovereign bonds in the Thai baht market after Thailand added Myanmar and Cambodia to its list of approved foreign issuers.

WSJ: – Bond Investors’ sentiment on India, Indonesia diverge. – Global bond investors are diving into India and losing interest in Indonesia, revealing a split in sentiment on two of this year’s most popular emerging markets.

PIMCO: – PIMCO target maturity emerging markets strategy. – In an environment of lower than historically expected yields, investors continue to be drawn to emerging markets as they offer a yield advantage with generally better fundamentals.

Citywire Global: – Investors ‘too bearish for too long’ on duration, says EM credit chief. The market fixation with maintaining a short duration stance in advance of rising rates has gone on too long and investors have become too rigid in their outlook.

InvestorPlace: – Emerging market bonds: Where do we go from here? Investors that were early to identify the attractive valuations following the volatility in emerging market bonds in early 2014 are still sitting atop a pile of gains, yet in recent months new investors haven’t experienced the same steady uptrend.

 

Catastrophe Bonds

Artemis: – Anticipation stimulates secondary cat bond & ILS trading in October. – The anticipation of a brisk last two months of the year, with reports that a number of billion dollars worth of new catastrophe bonds may come to market, stimulated secondary ILS trading activity in October despite the primary market remaining quiet.

Fundweb: – Catastrophe bond issues shooting for record $9bn this year. – An insurance shortfall is driving large gains in the catastrophe bond market which is on track for a record $9bn of issuance this year, GAM Star Cat Bond manager John Seo says.

 

Investment Strategy

The 5 Funds: – Creating the perfect bond ETF portfolio. –  Ask any financial ‘expert’ and they will tell you to avoid bonds at all costs as rising rates will certainly hurt them. Yet, for most conservative and even moderate investors having some downside protection in the shape of bonds is vital for long term performance. This article discusses creating a bond portfolio using a few different bond ETFs that will help protect against a market decline and hedge against rising interest rates.

ETF Trends: – Hedged fixed-income ETFs for a rising rate environment. – Now that U.S. markets try to wean itself off quantitative easing and prepares for rate risks, bond investors can utilize long-short exchange traded funds to navigate the fixed-income market while mitigating the negative effects of rising rates.

Sun Sentinel: – Is your investment portfolio really diversified? – Nearly everyone who invests in equities knows that an investment portfolio needs to be diversified, in order to help balance some of the risks of various investments. There is a problem because most people don’t understand that there are many forms of diversification. Diversification does not really protect you from market losses, and over long periods of time, diversification is guaranteed to cost you money, compared to alternative methods of portfolio protection.

TheStreet: – European bonds offer opportunities says Babson fund manager Freno. – While the U.S. stock market continues to make new all-time highs, there are other opportunities around the world and in different assets. According to Michael Freno, investors should open their eyes to the world of corporate bonds.

ETF Trends: – Use bond ETFs to managed your risk exposure. – Investors can utilize bond exchange traded funds to craft a customized fixed-income portfolio and to minimize exposure to potential risks in a changing bond market environment.

 

Bond Funds

About.com: – The problem with international bond index funds. – Investors who own global or international bond index funds may be taking on more risk than they realize. While these funds have the typical risks associated with bond funds and international investing – currency risk,interest-rate risk, etc. – there may be another, hidden danger: the way the indices themselves are constructed.

Valuewalk: – Is it premature to crown Gundlach “Bond King?” – When market environments change for bonds, and rates rise, this will be an environment to best separate the alpha from the beta among bond traders.

Businessweek: – BlackRock takes Pimco assets with No. 1 Rieder fund. – At a BlackRock (BLK:US) event last week in New York, fund manager Rick Rieder told about 100 advisers that he expects interest rates to remain low as aging Baby Boomers seek the stability of fixed-income investments. The talk was enough to persuade Larry Glazer to shift even more client money from Pimco to Rieder’s BlackRock fund.

Financial Advisor: – Legg Mason attracts most money in seven years into bonds. – Legg Mason Inc. attracted $5.1 billion into its bond funds in October, the most in more than seven years, after the departure of Bill Gross from Pacific Investment Management Co. prompted investors to reallocate billions of dollars.

Star Tribune: – Index investing isn’t just for stocks: Bond index funds are drawing billions of dollars. – More money is flowing into mutual funds and exchange-traded funds that track bond indexes, lured by low expenses. It’s been a relatively slow migration, but investors got a big jolt in September with the sudden departure of famed bond guru Bill Gross from PIMCO.

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