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

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Learn Bonds: – A rare victory for bondholders in California. – The municipal bond market is currently a story of tightening credit spreads and a rare victory for bondholders in California of all places.

Learn Bonds: – 3 High-risk, high-reward, high-yielding corporate bonds. – For some investors, cash is king. For others, income-producing assets are king. If you are a member of the latter group, you may be interested in the following three high-risk, high-reward, high-yielding corporate bonds.

Learn Bonds: – Bond funds or individual bonds? That is the question. – As investors peruse their options in the fixed-income space, one of the major questions they’ll be faced with is whether to utilize funds either via open- or closed-end funds, ETFs, or individual issues. Each option offers its pros and cons, and the answer is probably not clear cut from investor to investor.

Learn Bonds: – Merck – Counting on the pipeline to revive its fortunes. – Right now, Merck (NYSE: MRK), the nation’s second biggest pharmaceutical maker, is a curious animal: a value stock that’s priced like a growth stock. It’s almost enough to for me to put a “Sell” recommendation on it, but not quite.  An explanation is in order.

Learn Bonds: – Concerns about rising rates – The credit risk factor. – Investors are concerned with what is going to happen with yields when the Federal Reserve allows interest rates to begin to climb. The measures discussed in this post provide some idea of the direction the markets are moving and can be used to help interpret that movement.

To see a list of high yielding CDs go here.

 

Municipal Bonds

Bond Buyer: – Waiting Game: Retail buyers hoard cash for future rate increase. – Retail investors are keeping their powder dry, holding money out of the municipal market as they wait for the Federal Reserve Board to make good on its promise of higher interest rates, municipal managers said.

NY Times: – How the big tobacco deal went bad. – Looking at the continuing decline in cigarette sales and the corresponding payments, many analysts, believe that tobacco bond defaults will begin to materialize by 2026.

Bloomberg: – Puerto Rico lawmakers to consider G.O. bonds, Senate head says. – Puerto Rico lawmakers plan to work on legislation in the next couple of months to allow the junk-rated commonwealth to sell general-obligation bonds, Senate President Eduardo Bhatia said.

Bond Case Briefs: – Insurers build market share as Detroit shows value. – Municipal bond insurers are capturing the most market share since 2009 as Detroit’s bankruptcy and Puerto Rico’s struggles underscore the value of the coverage to investors in the $3.7 trillion market.

Governing: – S&P defends higher municipal credit ratings. – Over the last year, the credit agency upgraded 41 percent of local governments’ ratings, drawing skepticism from some.

 

Bond Market

Market Watch: – Bond trading is about to get a whole lot harder. – A fall in the price of junk bonds, sparked by the perception that the risky debt was getting overvalued, was notable for one thing: traders weren’t complaining about an inability to locate buyers amid the recent selloff.

FT: – High risk bonds have further to fall. – Searching for yield and buying risky assets have been the name of the game for bond portfolio managers since the crisis. The riskier the bonds, the better the performance: high yield bonds beat the S&P 500 in three of the past five years.

FT: – Three’s company for bond trading venture. – (Subscription) The battle being waged to reshape the way bonds are traded on Wall Street has gained intensity with the departure of three fixed income specialists from Goldman Sachs, Barclays and Citadel to create a new electronic platform.

ValueWalk: – The Liquidity Illusion: Pension funds should rethink fixed income. – Pension fund managers, like many investors, have historically paid a premium for liquidity. Lately they’ve started to realize that liquidity can be an illusion—but it can also be an opportunity.

Bloomberg: – Bond rally that wasn’t supposed to be delivers surprises. – After suffering their first losing month this year in September, fixed-income securities of all types worldwide are back on track in October to deliver their biggest annual returns since 2002 based on Bank of America Merrill Lynch indexes. Yields fell to an average 1.62 percent yesterday, down from 2.09 percent at the end of 2013 and the lowest in 17 months.

 

Treasury Bonds

Bloomberg: – American banks pile up Treasuries as deposits surpass loans. – American banks are loading up on U.S. government debt, a sign they remain cautious on the economy even with the jobless rate at a six-year low and corporations at their healthiest in a generation.

WSJ: – U.S. Government bonds gain on global growth concerns. – Treasury bonds strengthened for a second straight day on Tuesday as fresh worries over global economic growth boosted demand for ultrasafe U.S. government debt.

WSJ: – U.S. Government bonds gain on global growth concerns. – (Subscription) Treasury bonds strengthened for a second straight day on Tuesday as fresh worries over global economic growth boosted demand for ultrasafe U.S. government debt.

FT: – Foreign buyers hold key to debt prices. – (Subscription) Larger foreign participation in a government’s debt tends to be highly welcome during stable times, when the extra demand pushes up prices and pulls down yields – making it cheaper for the country to borrow money. But in times of trouble the shift can leave a country more vulnerable to global financial conditions.

Bloomberg: – U.S. two-year notes poised for biggest weekly gain since 2011. – Treasuries gained, with two-year yields set for the biggest weekly drop in more than three years, as investors pared expectations for interest-rate increases after the Federal Reserve highlighted risks to the U.S. economy.

 

Investment Grade Bonds

FT: – Start getting ready for the corporate bond crash. – How close are we to a credit market crash? I would say that when prospective witnesses at the post-crash Congressional hearings begin circulating drafts of their testimony in advance . . . you should perhaps get ready.

Donald van Deventer: – Kinder Morgan energy partners edges Berkshire hathaway for ‘best value bond trade’. – 2 issues by Kinder Morgan Energy Partners edge out a Berkshire Hathaway Inc. bond issue for best value bond trades.

FT Alphaville: – Houston, we don’t have a corporate bond liquidity problem. – (Subscription) Gary Jenkins at LNG sets out his views about what might happen to the corporate bond market once the Fed begins pulling back liquidity seriously. It’s all down to the vanquished liquidity in the market already.

Market Realist: – Overview: A bird’s eye view of investment-grade bond markets. – U.S. investment-grade bonds include both Treasury securities, issued by the U.S. Department of the Treasury, and corporate bonds, issued by high-quality corporate borrowers such as Coca Cola Company (or KO) and Oracle Corporation (or ORCL). These companies are rated BBB or above, as per the ratings guidelines provided by credit ratings agency, Standard & Poor’s.

 

High-Yield Bonds

CNBC: – Is it time to buy junk bonds? – Larry McDonald, senior director at Newedge USA, says that junk bonds have seen a correction over the last two weeks but if they get “a little cheaper it’s a buy.”

Financial Lexicon: – Here’s what’s wrong with HYG. – I have three strict requirements for investing in bonds. HYG has experienced periods of falling prices and falling yields-on-cost. For me to feel comfortable investing in HYG, it would require significantly lower prices.

Bloomberg: – Dudley sees froth, IMF sees froth, bond investors don’t. – What’s an investor to do when everyone from the U.S. Federal Reserve to the International Monetary Fund say they see bubbles developing in markets? The answer, apparently, is to keep buying.

Bloomberg: – Pimco says junk bonds attractive as turmoil boosts value. – The biggest losses in the junk-bond market in more than a year are drawing Pacific Investment Management Co. to the debt as it finds attractive opportunities unearthed by the sell off last month.

WSJ: – Junk bond funds attract $1.3 billion in latest week. –  (Subscription) Investors plowed $1.3 billion into high-yield bond funds in the week ended Wednesday, fund tracker Lipper said, the latest sign of investors’ search for income amid paltry interest rates around the world.

 

Emerging Markets

What Investment: – The eight golden rules for emerging market investing. – Austin Forey, manager of the JP Morgan Emerging Markets investment trust, has outlined the eight golden rules he believes investors in emerging markets should follow.

Investment Week: – Ashmore partners with Source for active EM ETF launch. – Emerging markets specialist Ashmore has partnered with ETF provider Source to launch a suite of actively-managed emerging market debt ETFs.

ZeroHedge: – The reason behind the latest emerging market freakout, in two charts. – Confused by the most recent collapse in Emerging Markets, which if it hasn’t approached the tumble experienced in the first Taper Tantrum, will do so soon enough? Don’t be. The following two charts should put everything in perspective and yes, it has nothing to do with the soaring US Dollar and everything to do with the slowdown in Chinese credit creation.

Bloomberg: – Investors may sell junk debt ahead of Chinese tier 1 deals. – Investors may sell Chinese junk-rated bonds to make room in their portfolios for additional Tier 1 bank capital securities from the world’s second-largest economy, according to a survey of money managers by Morgan Stanley.

Reuters: – Growth worries slam stocks, oil, emerging markets. –  An index of global equities fell to a seven-month low and oil hit a two-year low on Friday, continuing a string of weakness built on worries about weak worldwide economic growth.

 

Catastrophe Bonds

Artemis: – ILS rates ‘plunge to new lows’, soft market prevails. – The pace of decline shown by insurance-linked securities and catastrophe bond premiums or rates has accelerated through the third-quarter of 2014, plunging to new lows, according to the latest analysis from ILS consultancy Lane Financial LLC.

Business Insurance: – About $2.5-$3 billion of cat bond, ILS deals likely in fourth quarter. – Paul Schultz, CEO of Aon Benfield Securities, said that the catastrophe bonds and insurance-linked securities market will surely see a surge in the fourth quarter of 2014, reports Artemis.bm citing A.M. Best Co. Inc.

Business Insurance: – About $2.5-$3 billion of cat bond, ILS deals likely in fourth quarter. – Paul Schultz, CEO of Aon Benfield Securities, said that the catastrophe bonds and insurance-linked securities market will surely see a surge in the fourth quarter of 2014, reports Artemis.bm citing A.M. Best Co. Inc.

 

Investment Strategy

FT Adviser: – Role of fixed income in multi-asset. – When considering the role of fixed income in a diversified multi-asset, multi-sector portfolio, the primary focus is to provide a stable source of return while serving as a diversifier to the riskier equity allocation, which is likely to be the leading driver of total returns over the long term.

Investopedia: – Pimco investor? Consider this before bailing. – Here are six considerations for Pimco investors as you decide what to do going forward.

InvestmentNews: – Goldman Sachs strategists say investors hold too much stocks and bonds and need to jack up alternatives allocations. – It’s a matter of diversifying rather than dabbling: Adding a few percentage points ‘is not doing anything’.

Aleph Blog: – Managing money for retirement. – Investing is difficult. That said, we can make it harder still. We can encourage people with little to no training to try to do it for themselves.  Sadly, many people get caught in the fear/greed cycle, and show up at the wrong time to buy and/or sell. But investing can be made even more difficult. Investing reaches its most challenging level when you are relying on your investing to meet an anticipated and repeated need for cash outflows.

WSJ: – Pimco total return cut U.S. government-related holdings in September. –  (Subscription) Pimco’s Total Return Fund, the world’s largest bond fund, cut U.S. government-related debt holdings in September amid an abrupt departure of the fund’s famed manager, Bill Gross.

 

Bond Funds

FT: – Media is ‘making a meal’ of SEC’s investigation into Pimco ETF. – The probe by US regulators into Pimco’s management of its flagship exchange traded fund has again raised uncomfortable questions about the transparency of ETFs and whether investors are getting a fair deal.

Reuters: – A thousand miles apart, Janus bond chief Smith embraces Gross. – Before hiring star bond fund manager Bill Gross last month, Janus Capital Group Inc (JNS.N) Chief Executive Dick Weil took care to check with the bond chief he already had, Gibson Smith.

Reuters: – Pimco’s outflow headaches only just beginning. – Outflows from Pimco may be far from over as many investors have yet to decide whether to stick with the Newport Beach, California-based asset manager.

LA Times: – After Bill Gross’ departure, Pimco staffers stay put. Bill Gross has drawn droves of investors for years to watch his appearances on financial TV shows, but so far he is no magnet for his former colleagues at Pimco. No one from Pacific Investment Management Co. has joined the deposed 70-year-old ‘bond king’ as he sets up shop at rival Janus Capital Group, at least so far as the fund-watchers at investment researcher Morningstar Inc. can tell.

Businessweek: – MFS fund top performer after ignoring forecasts. – Three decades into the bull market for bonds, few forecasters predicted that yields would continue to fall this year. Peter Kotsopoulos did.

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