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This Week’s Top Bond Market Stories – November 22nd Edition

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Learn Bonds: – U.S. economic data for this week. – A closer look at this weeks data and what it means to investors.

Learn Bonds: – 7 Step strategy for long-term bond investing success. – We all live busy lives and only have so much time that can be dedicated to learning about the financial markets and executing our portfolio strategy. With that in mind, I would like to present, as concisely as possible, my outline for obtaining long-term success in bonds.  It consists of the following seven steps.

Learn Bonds: – The top five stocks for bond investors. – Predictable cash flow is one of the many positive attributes of investing in bonds. While common stocks should never be considered an apples-to-apples substitute for fixed-income, there are certain kinds of companies that possess bond-like attributes. Business models with strong recurring revenues or contractual obligations can be ideal choices for investors looking for strong dividend durability.

Learn Bonds: – Bond market continues to record falling expectations of inflation. – The inflationary expectations investors have built into the bond markets crashed through another level this week.

Learn Bonds: – Treasuries are biggest losing bonds. – For the past month, Treasuries were the poorest performing developed market bonds, delivering gains to investors internationally based only on a dollar rally.

To see a list of high yielding CDs go here.

 

Municipal Bonds

NY Times: – James A. Lebenthal, muni bond expert, dies at 86. – James A. Lebenthal, America’s best-known municipal bond salesman, who turned the tax-free financial instruments called munis into a household word with radio and television ads dramatizing how ordinary investors built subways, sewers, bridges and schools, died on Friday in Manhattan. He was 86.

Epoch Times: – Can muni bonds sustain recent gains? – One of the least glamorous investments has been on a tear this year. Year-to-date returns on municipal bonds, or debts issued by state or local governments to finance capital expenditures, have exceeded expectations in 2014 after taking a beating last year. Muni bonds have posted their longest string of consecutive monthly gains in more than 20 years.

Reuters: – Soaring high-yield muni funds could fall in 2015: Eaton Vance. – High-yield U.S. municipal bond funds, which saw runaway returns for most of this year, could spiral downward in 2015 if investors become spooked anew by negative headlines out of Puerto Rico, a senior portfolio advisor at Eaton Vance said on Tuesday.

Reuters: – Soaring high-yield muni funds could fall in 2015: Eaton Vance. – High-yield U.S. municipal bond funds, which saw runaway returns for most of this year, could spiral downward in 2015 if investors become spooked anew by negative headlines out of Puerto Rico, a senior portfolio advisor at Eaton Vance said on Tuesday.

MarketWatch: – Value opportunities in today’s Municipal bond markets can be unearthed with research. – Over the past year, municipal bond markets have experienced resurgences that have made them increasingly attractive to a broad range of investors.  Yet, municipal fixed-income bonds can be complex, and analyzing and finding value among the many securities available can challenge even experienced financial managers.

 

Bond Market

Bloomberg: – Bond pain seen ending for bears in poll saying they’re right. – After the legions of market savants missed out on hundreds of billions of dollars in gains this year anticipating a tumble in bonds, you’d think they would have found another target. You’d be wrong.

Bloomberg: – Bond pain seen ending for bears in poll saying they’re right. – After the legions of market savants missed out on hundreds of billions of dollars in gains this year anticipating a tumble in bonds, you’d think they would have found another target. You’d be wrong.

Bloomberg: – U.S. Has record inflow of portfolio investments in September. – The U.S. posted a record inflow of long-term portfolio investments in September as the dollar strengthened and foreign buyers accumulated corporate debt, Treasuries and agency securities.

Financial Post: – Bond markets to get rude awakening in 2015. – It’s been a good year to be a U.S. or Canadian bond investor, but that could end next year, says CIBC World Markets chief economist.

ValueWalk: – Overseas influences on U.S. bond prices. – Demand from overseas investors once again helped the bond market shrug off stronger economic data and weak Treasury auction demand.

 

Treasury Bonds

Financial Post: – In defence of government bonds: Because sometimes the world doesn’t go just like it’s supposed to. – At the beginning of 2014, it seemed like everyone was calling for interest rates to rise. The argument was simple: The U.S. Federal Reserve was set to reduce its asset purchase program, so bond yields had nowhere to go but up. They were wrong.

Bloomberg: – Flash boys raising volatility in wild new Treasury market. In a flash, the bond market went wild. What began on Oct. 15 as another day in the U.S. Treasury market suddenly turned into the biggest yield fluctuations in a quarter century, leaving investors worrying there will be turbulence ahead.

ValueWalk: – Should we scrap Treasury bonds for Treasury perpetuities? – University of Chicago professor John Cochrane argues that we should restructure US federal debt as a perpetuities to eliminate the unnecessary friction of rolling over debt.

Reuters: – U.S. TIPS breakeven rates fall further after FOMC minutes. – The U.S. bond market’s gauges of inflation expectations fell to their lowest in more than a month on Wednesday after minutes of the Federal Reserve’s October meeting suggested the U.S. central bank remained on track to raise interest rates next year.

FT Alphaville: – The liquidity crisis that awaits. – (Subscription) Fears are growing that the next crisis, if it should manifest, won’t come from any of the areas that spawned the 2008 crisis. To the contrary, it will emerge from areas we’ve not really had to worry about to date.

 

Investment Grade Bonds

Donald van Deventer: – Kinder Morgan Energy Partners topped best value long-term bond ranking last week. – We rank all trades for bonds with maturities of 10 years or more by our usual criterion for “best value,” the ratio of credit spread to default probability.

Bloomberg: – J&J sells $2 billion of bonds as investors chase AAA debt. – Johnson & Johnson sold $2 billion of bonds today, increasing the size of its sale as one of the top-rated U.S. issuers took advantage of interest in high-grade securities.

Bloomberg: – Bond record in sight as sales near $4 trillion. Global corporate bond issuance has surpassed all of 2013, with the annual record now in sight as investors reap the biggest gains since 2002.

ValueWalk: – Corporate bonds: I had my cake, until I ate it. – After 30 years of declining interest rates, bond investors are beginning to worry that rates will go higher—especially after the events of May 2013.

 

High-Yield Bonds

Bloomberg: – A $113 billion bet high-grade debt thrives on slowdown. – There’s about $113 billion that seems to be betting on a growth slowdown instead of higher interest rates.

Sovereign Investor: – Junk bonds: The overlooked investment for high yield. – Even with the promise of the Fed raising interest rates soon, high yield can be tricky to find in the U.S. market. Of course, timing is bad right now for municipal bonds. Prices are poised to fall, creating an opportunity for you to jump in … but just not right now.

Investing.com: – Is the bubble about to burst? Check out junk bonds. – One of the surest signs that a bubble is about to burst are junk bonds behaving like respectable paper. That is, their yields drop to mid-single digits, they start appearing with liberal loan covenants that display a high degree of trust in the issuer, and they start reporting really low default rates that lead the gullible to view them as “safe”. So everyone from pension funds to retirees start loading up in the expectation of banking an extra few points of yield with minimal risk.

Reuters: – Calvert’s Roy says high-yield market offers ‘some good gems’. – Low default rates and slow U.S. growth mean that high-yield bonds remain an attractive investment area, Calvert Investment Management bond chief Cathy Roy said on Wednesday.

FT: – U.S. junk bonds lose some shine. – (Subscription) Investors pulled out of junk bonds for the first time in over a month. Last week mutual funds and exchange traded funds investing in the securities saw $281m in outflows in the week through Wednesday, according to Lipper.

 

Emerging Markets

Investing.com: – 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.

Bloomberg: – Venezuela’s bond plummet can’t sway BofA as losses mount. – Being bullish on Venezuela’s bonds hasn’t quite panned out for Bank of America Corp. and Barclays Plc. Still, neither are prepared to give up their calls.

Bloomberg: – Why emerging markets ETFs don’t work. – Emerging markets ETFs, the strategy that doesn’t really deliver results. I’m going to make a blunt statement, which is always risky. But hear me out, because what I have to say has direct effects on your financial success.

Bloomberg: – Traders spot 63% profit in Argentina dollar-linked bonds. – Investing in a country that uses multiple foreign-exchange rates to control the flow of dollars can be fraught with risk. In Argentina, it’s also giving bond traders a chance to reap a profit exceeding 60 percent.

Businessweek: – McDonald’s beef supplier hit by collateral bond damage. Not even Marfrig Global Foods SA, the McDonald’s Corp. hamburger meat supplier that’s won upgrades from two ratings companies in the past five weeks, could overcome investors’ growing discontent over Brazil.

 

Catastrophe Bonds

Artemis: – World Bank set to bring more cat bonds, looks at health risk transfer. – The World Bank is exploring potential new transactions as part of its Capital-at-Risk Notes Program, where it issues catastrophe bonds on behalf of sovereign entities. The Bank is also considering ways to use the facility to provide health risk transfer as well.

Artemis: – Catastrophe bond & ILS market reaches record high at $23.431 billion. – The outstanding catastrophe bond and insurance-linked securities market, based on transactions listed in the Artemis Deal Directory, has reached a new all-time high of $23.431 billion, demonstrating that ILS and cat bonds continue to generate strong interest.

 

Green Bonds

S&P Dow Jones Indices: – Are green bonds really in the red? – The green credit market has grown 50% annually since 2007, however, market sentiment remains mixed on performance. The S&P Green Bond Index is down 0.99% YTD, when most of the bond market has done quite well in 2014. Abundant growth in concert with poor performance could prompt the suggestion that investors are deriving utility from social responsibility in lieu of returns.

 

Investment Strategy

Citywire: – On course for converts: selectors reveal bond managers to back. – When doing battle in today’s environment, convertible bonds have shown their investment credentials. Their unique ability to transform from debt to equity has meant that for many, they have become the weapon of choice in the hunt for yield.

Across the curve: – How many 10 year notes do you need? – If Kocherlakota were a client and I were still hawking bonds for a living if I had heard this bullish peroration on the phone I would  have immediately asked him how many 10 year notes he wanted me to offer him. He thinks that it will be inappropriate to hike rates in 2015 and he does not believe that inflation will return to 2 percent until 2018.

Money Beat: – Here are Goldman Sachs’s top trades for 2015. – The release of Goldman Sachs’ top trade ideas for the year ahead is an annual staple. Whether you think these are power trades or not, the time has come for this year’s release.

Morningstar: – Top fund picks for risk-takers. – A compact list of stock, bond, and allocation offerings that have been risky but worth it.

 

Bond Funds

ETF Database: – How PIMCO ETFs have handled Bill Gross’s departure. – As many expected, some of PIMCO’s ETFs saw heavy outflows, but the exodus has not been nearly as pronounced as it was for the company’s mutual funds. This table shows the net investing flows of PIMCO’s five largest ETFs since the day that Gross announced he would be leaving.

Bloomberg: – Hedge funds bet against Fed’s rate plan in contrarian bond trade. – It paid off to be a contrarian bond investor heading into 2014. Hedge funds have taken note. So, as mutual-fund managers show confidence in the Federal Reserve’s plan to raise benchmark rates next year, hedge funds are taking the opposite position. They’re poised to win in a more pessimistic scenario, where a weak economy causes central bankers to maintain their easy-money policies for longer, according to data compiled by Citigroup Inc.

Business Insider: – George Soros just gave Bill Gross $500 million to play with. – In an announcement on its website, Janus announced that Quantum Partners, a private investment vehicle managed by Soros Fund Management, will invest $500 million in an account to be managed by Bill Gross.

S&P Capital IQ: – Big withdrawals from high yield bond ETFs wipe out small mutual fund inflows. – Retail-cash flows turned negative for the first time in five weeks, with a net $281 million redemption in the week ended Nov. 19, according to Lipper. However, that figure is tied to a large withdrawal of $349 million from exchange-traded funds wiping out a small inflow of $68 million to mutual funds.

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