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This Week’s Top Bond Market Stories – November 29th Edition

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Learn Bonds: – Defined-maturity funds – The answer to your bond fund needs. – In light of today’s low-interest-rate environment, I can understand an investor’s reluctance to owning traditional bond funds. After all, if interest rates across the bond universe were to rise significantly, many bond funds would take a noticeable hit. This may scare some investors into avoiding an allocation to bonds altogether. But there is a better solution.

Learn Bonds: – Fed looks to reduce excess reserves in the banking system. – Right now, it looks like the Federal Reserve has chosen a path to reduce the amount of excess reserves that are available to the banking system. This is apparently the way the Fed is going to move the system down the road to rising interest rates.

To see a list of high yielding CDs go here.

Municipal Bonds

4 Traders: – Legg Mason: 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.

Bloomberg: – The muni meltdown that wasn’t. – Bloomberg’s Joe Mysak looks back at the hysteria that has surrounded municipal bonds over the past several years. Why has this once mundane investment suddenly become front page news?

Governing: – Are muni bonds being replaced by direct loans? – Earlier this year, Wisconsin pulled off a fancy financing manoeuvre designed to avoid an expected increase in interest rates. Rather than waiting until next year to go to the municipal market and refinance a certain set of bonds, the state got a $278 million loan secured directly from a bank. In doing so, Wisconsin locked in 2014’s lower interest rates and can pay off bondholders next year with the proceeds.

 

Bond Market

ValueWalk: – Bonds and the Fed: Lagging long yields. – This post stems from an investigation into the question over whether yield curves move in parallel shifts or not, thus justifying traditional duration [bond price interest-rate sensitivity] statistics or not.

The Telegraph: – Investors fear bond market ‘meltdown’, study finds. – Investors, traders and analysts are concerned that a lack of liquidity will spark a correction in bond markets.

Chief Investment Officer: – Bond managers ‘averse’ to holding cash despite liquidity fears. – Bond funds have not increased cash holdings despite growing fears of illiquidity in fixed income markets, according to Fitch Ratings.

Reuters: – U.S. bond futures, ETF volume jumps, boosts prices. – A mid-afternoon flurry of buying in long-dated U.S. Treasury futures and exchange-traded funds pushed prices to session highs on Tuesday.

Bloomberg: – Bye-bye bond dealers? Investor-to-investor trading gains. – Bond markets are seeking other ways to trade bonds outside of banks, as investor-to-investor trading gains strength. Bloomberg’s Lisa Abramowicz reports on the new market makers in bond trading on “Market Makers.”

 

Treasury Bonds

The Hornet: – Speculators’ net bearish bets on U.S. 10 year Treasury note. – Speculative U.S. 10-year T-note futures net shorts highest since May-CFTC.Nov 21 (Reuters) – Speculators’ net bearish bets on U.S. 10-year Treasury note futures rose for a third week to their highest since May, according to Commodity Futures Trading Commission data released on Friday.

Reuters: – DoubleLine’s Gundlach says U.S. yield curve to flatten. Jeffrey Gundlach, chief executive and chief investment officer of DoubleLine Capital, said Monday the U.S. Treasury yield curve could flatten at an “unthinkable” level next year.

Reuters: – U.S. yields drop on weak U.S. data, continued low euro zone rates. – Benchmark U.S. Treasury yields fell to their lowest levels in over a month on Wednesday, while long-dated yields also hit fresh over one-month lows, on weaker-than-expected U.S. economic data and continued low yields in Europe.

 

Investment Grade Bonds

WSJ: – Corporate Bonds: Not so brave in the new world. – (Subscription) The bond-market sands are starting to shift. That is particularly true in the U.S., where investment-grade corporate bonds, one of the long-standing beneficiaries of the financial crisis, have started to come under pressure. The gap between U.S. corporate bond yields and U.S. Treasuries now stands close to its widest this year, around 1.24 percentage points, according to Barclays indexes. Year-to-date returns have faded from above 8% in mid-October to closer to 6%.

Bloomberg: – Kinder Morgan sells $6 billion of bonds for consolidation. Kinder Morgan Inc. (KMI) sold $6 billion of notes today to help fund the estimated $44 billion consolidation of its oil-pipeline empire, propelling U.S. corporate-bond sales closer to a new annual record.

Bloomberg: – High-grade bond issuance surges to record $1.15 Trillion. – Investment-grade corporate debt sales have surged to a record $1.15 trillion this year as the most creditworthy borrowers flocked to the U.S. bond market to take advantage of historically low interest rates.

 

High-Yield Bonds

Zero Hedge: – The levered canary in the coalmine: High yield is flashing a “sell signal”, says Barclays. The growing divergence between equity and credit markets this year have seldom been far from our pages, and now it appears Barclays also recognises this fact. As they note, in 2007, as hints of the financial crisis were unveiled, spreads in the high yield market increased sharply. Meanwhile, the equity market climbed to a new record high.

Business Insider: – There’s trouble in U.S. energy junk bonds. A surge in capital expenditures and leverage in the energy industry could end badly for some companies and their creditors. While select opportunities exist, we think bond investors should think carefully before they blindly bankroll today’s North American energy revolution.

IFR: – Springleaf Finance sole deal in US high-yield. – The US high-yield new issues market slowed to a trickle on Tuesday, with just one deal for Springleaf Finance Corp expected to price ahead of the Thanksgiving holiday.

 

Emerging Markets

Emerging Markets Daily: – China fuels emerging markets rally: The week in review. – China pulled a lever Friday, and it made emerging markets investors quite happy.

FT Adviser: – Managers quell fears of emerging market sell-off. – (Subscription) Fund managers have rushed to allay fears of another emerging markets sell-off, as the dollar strengthens and the US Federal Reserve withdraws quantitative easing (QE).

Market Realist: – Why emerging market bonds have seen inflows in 2014. – Emerging market bonds have been one beneficiary of today’s low yield environment. As investors casted a wider net for income, flows into emerging market bond exchange traded products (or ETPs) doubled from 2011 to about $6 bn last year. But now, after emerging market bonds’ rally, is it too late to allocate to this asset class?

 

Catastrophe Bonds

Artemis:  – Japan quake damage thought insufficient to worry catastrophe bonds. – Damage from the magnitude 6.2 earthquake which struck the Nagano region of central Japan on Saturday is not thought to be sufficiently severe to worry any of the exposed Japanese earthquake catastrophe bond transactions, according to the market.

 

Investment Strategy

Oregon Live: – What to do with PIMCO Total Return in your 401(k). – You may have heard of Bill Gross. He’s an investment rock star, the Bruce Springsteen of the bond world. Just about every other 401(k)-type plan in America had a bond fund he managed in its lineup – PIMCO’s Total Return fund.

Market Realist: – Emerging versus developed market bonds: Which should you choose? – EM debt generally now offers higher yields than developed market bonds. And while emerging market debt yields have dropped in recent years, the size of the drop has been much less precipitous than that of developed market yields. In addition, emerging market bond spreads are still wide relative to U.S. Treasuries. This means there’s further room for spread compression as emerging market asset quality and fiscal credibility continue to improve.

Income Investing: – For income, junk bonds beat REITs, utility stocks – BlackRock. Income-hungry investors have pushed up valuations for just about anything with a coupon in recent months and years. Which of these investments now look the most vulnerable if rates are going to rise, and which should investors continue to target?

 

Bond Funds

ETF Trends: – A bond ETF to diminish volatility and boost yields. – Convertible bond exchange traded funds are a good way to reduce volatility in a fixed-income investment portfolio and generate some extra cash on the side.

Income Investing: – Pimco’s Post-Gross outflows only halfway over – Wells Fargo. – The billions of dollars investors have withdrawn from Pimco since Bill Gross left the firm in September may only be halfway finished, with such outflows likely to remain elevated through the middle of next year, Wells Fargo Securities equity analyst Christopher Harris writes.

Morningstar: – Should investors be thankful for interest-rate-hedged bonds? – Investors are likely better served by traditional bond funds.

About.com: – How do currency movements affect international bond funds. There are a wide range of factors that can affect the performance of your bond funds, but the impact of the changing value of the U.S. dollar is underappreciated and frequently misunderstood.

 

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