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This Week’s Top Bond Market Stories – October 25th Edition

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Learn Bonds: – The decumulation of equities will provide future support to bonds. – Now seems like an appropriate time to remind investors of something Morgan Stanley Research published in late 2013. It concerns baby boomers and what Morgan Stanley terms the “decumulation phase” that could strain the financial markets beginning just a few years from now.

Learn Bonds: – Bond theory from the Bond Squad. – Our focus this year has been on economic data, fiscal and monetary policy and financial market conditions. However, we have received many questions from readers regarding the callability and price sensitivity of fixed income securities. As such, the focus of this week’s “In the Trenches” report is bond theory.

Learn Bonds: – Bond bears fall further into hibernation. – So much for bonds being a lousy play in 2014. Investors in TLT have seen better than 20% total return this year, as Treasury rates have fallen to their lowest levels in about 18 months.

Learn Bonds: – ECB begins buying asset-backed securities. – This week the European Central Bank begins its new program of buying asset-backed securities and covered bonds.  But, things are not over here in the United States. If the slow growth…and possibly deflation…from Europe impacts the United States, then Federal Reserve monetary policy might have to be changed.

Learn Bonds: – Are junk bond ETFs right for your portfolio? – There will be times when the junk bond sector sells off just because the market panics, but that’s not what you should be worried about. You can always move out if interest rates start to rise significantly. In the meantime, buy some high yield ETF so you have some exposure.

To see a list of high yielding CDs go here.

 

Municipal Bonds

Bloomberg: – Munis poised for biggest October gain since 2000 amid bond rally. – The $3.7 trillion municipal market is poised for its biggest October rally in 14 years, pushing yields to 16-month lows in defiance of historical trading patterns for the month.

Income Investing: – ‘Overbought’ Muni Bonds Warrant Caution – MMA. – Municipal bonds have been dutifully tagging along with Treasuries as the latter have rallied in recent weeks, with high-grade muni bonds gaining 0.6% last week and 1.45% so far this month, per Bank of America data. That’s left the muni market looking a bit rich to some people, including Matt Fabian of Municipal Market Advisors.

WSJ: – World Trade Center tower rides a muni-bond revival. – After more than a year of uncertainty, a third tower at the World Trade Center site appears poised to rise thanks to an unlikely catalyst: a turnaround in the market for municipal bonds.

WSJ: – California toll road sells $1.4 billion in bonds. – The operator of a struggling toll road in southern California sold about $1.4 billion in bonds on Wednesday, capitalizing on a broad decline in yields that has whetted investors’ appetite for riskier bets.

Investors.com: – Top municipal bond funds glide higher. – Municipal bond mutual funds have surpassed the performance of the S&P 500 in the past 15 years. Munis are outperforming this year too, gaining 8.5% vs. the S&P 500’s 5.9%.

 

Bond Market

CNBC: – Bogle vs. Pimco—who is right? – When the bond-fund heavyweight Pimco scuffles with passive investing guru John Bogle about the right approach to bond investing, it’s like watching a good prize-fight boxing match. Pull out the popcorn and let’s see who we think will be the winner.

MarketWatch: – Robots haven’t taken over the bond market yet. –  Trading in the bond market may be starting to catch up to the times, but we’re far from a world where all bond prices are quoted by R2-D2.

LPL Financial: – Bond market perspectives. Stay on guard. – Although yields may stay pinned low for potential fallout from abroad, we still believe investors should stay on guard, with an emphasis on corporate sectors and a slight underweight to bonds.

Bloomberg: – IMF finds flaw in bond industry as exiting mutual funds is too easy. – Investment firms made it easy for individuals to plow into infrequently-traded debt in good times. Perhaps they should make it tougher to exit in downturns.

The Republic: – Bonds offer protection from big stock-market swings, but what should you expect now? – The recent stock market sell-off is a reminder of the value of bonds in a diversified portfolio. But it’s also important for anyone moving into bonds to keep expectations in check following their decades-long run of strong returns.

 

Treasury Bonds

Bloomberg: – ‘Humongous’ Treasury future move shows trader didn’t do homework. – The price of 30-year Treasury contracts expiring in June jumped 7.3 percent yesterday, the first day they traded. What sets them apart is they’re the first futures where the U.S. government’s decision to stop issuing 30-year debt between 2001 and 2006 must be accounted for when valuing the derivatives.

Trustnet: – Beware “extremely expensive” bond market, warns Brookes. – The recent rally in government bonds following the sell-off in equities has left US treasuries and gilts “extremely expensive”, according to fund experts, who warn that investors are making a big mistake if they were to dip into sovereign debt at this level.

WSJ: – U.S. government bonds pull back for third straight day. – Investors sold ultrasafe U.S. government bonds for a third consecutive session, as fresh global data soothed anxieties over the economic outlook.

 

Investment Grade Bonds

FT: – Corporate bond sales recover as turmoil wanes. – Global corporate borrowers are returning to the US debt capital markets after sales of new bonds collapsed last week in the aftermath of a sharp sell-off in equities and a spike in volatility.

Wall St Daily: – Corporate bonds make good portfolio staples. – Good, quality corporate bonds are a reasonable compromise for at least part of our money. In fact, there are two reasons why corporate bonds make sense as part of an income portfolio.

Bloomberg: – Aberdeen Asset buys Goldman Sachs bonds as yield premiums paid. – Aberdeen Asset Management Plc bought bonds sold by Goldman Sachs Group Inc. and Morgan Stanley this week after risk aversion pushed up yield premiums.

 

High-Yield Bonds

Income Investing: – Why junk bonds are really small-cap stocks. – High-yield bonds are often seen as the bond market’s version of stocks, and analysts often expect both markets to move in tandem during times of volatility. But what’s the best equity index to look at when comparing stocks to junk bonds?

Income Investing: – Junk bonds now better value than bank loans – Citi. – Add Citi to the list of banks and asset managers who are finding fresh value in high-yield bonds after all the recent market gyrations. Citi this afternoon says it’s reversing its recent stance that had favored bank loans over high-yield bonds.

Kiplinger: – Handle junk bonds with care. – Because interest rates are so low today, the extra income you get from high-yield, or “junk,” bonds looks tempting. But before you buy in to junk, you should know what you’re getting yourself into.

WSJ: – Junk bonds rally. – A week after a selloff that pushed the price of junk bonds to its steepest decline in more than a year, investors once again snapped up speculative-grade debt. Among the firms that sold new bonds in the high-yield market this month was Constellation Brands, owner of the U.S. distribution rights for Corona beer, which sold two bonds totaling $800 million.

Elite Wealth Management: – The secret junk bond bomb that could sink the market. – It’s widely expected that the Fed will raise interest rates next year, possibly even next summer. If rates go up, then yields on both investment-grade and high-yield bonds will rise as well. But the real story isn’t the spread between high-yield and corporate bonds, it’s the spread between high-yield bonds and U.S. treasuries.

 

Emerging Markets

WSJ: – Argentina to sell up to $1 billion dollar-linked bonds this month. – (Subscription) Argentina’s government said it would sell up to $1 billion in local U.S. dollar-linked bonds later this month as it continues to tap local institutional investors such as banks and insurers for financing.

FT Adviser: – Emerging market bond inflows may start ‘reversing’. – Mike Riddell, the government bond tsar at M&G Investments, has warned of a potential crunch in emerging market local currency fixed income.

Forbes: – Aberdeen client survey shows financial advisors more bullish on emerging markets than U.S. – Mike Riddell, the government bond tsar at M&G Investments, has warned of a potential crunch in emerging market local currency fixed income.

Reuters: – Venezuela says to avoid costly foreign borrowing. – Venezuelan President Nicolas Maduro said on Wednesday that the South American country would avoid more borrowing on international markets due to rising costs as a result of worsening credit risk perceptions.

 

Green Bonds

The Guardian: – How do SolarCity’s new bonds stack up against other green investments? – The California solar company’s new bonds offer a green middle ground between CDs and stocks. But are they the best option for private investors?

 

Catastrophe Bonds

Reuters: – Extreme mortality bond testing investor view on pandemic risk. – An extreme mortality bond, which pays investors if a pandemic, a major terrorist attack or even a war causes more deaths than statisticians expect, is being quietly marketed to global institutional investors.

Artemis: – ILS and cat bond pricing expected to stabilise at 2013 levels. – The world’s largest reinsurance firm Munich Re believes that pricing for catastrophe bonds and insurance-linked securities (ILS) has stabilised at 2013 levels and expects it to remain broadly at current levels for the foreseeable future.

 

Investment Strategy

Investing.com: – Here’s a smarter way of searching for yield. – In general, I am not in favor of reaching for yield as the practice can entail a high degree of risk that income oriented investors cannot tolerate. I do understand, however, the dilemma facing such investors who need a regular stream of income.

ValueWalk: – Negative on government bonds as it expects “boring but better” growth to extend well into 2015. – Morgan Stanley sees recent growth fears as an opportunity to add exposure. In a Cross-Asset Strategy research note dated October 14 reviewed by ValueWalk, the brokerage firm said that growth remains intact in the U.S. and they are recommending investments in U.S. high yield instruments, select emerging markets and the long-end of U.S. investment grade credit instruments.

Investors.com: – Three hot bond ETF trends batted around at conference. – Three hot trends are coursing through the bond world, according to experts at ETF.com’s Inside Fixed Income in Newport Beach, Calif., on Wednesday. Here’s what they are.

Fortune.com: – Revenge of the mom and pop investors. – Individual investors have returned to the stock market in a very big way. But they are putting their money into plain vanilla, no frills, passive corners of the investing world.

 

Bond Funds

ETF Trends: – Solving the Fed riddle with new bond ETF ideas. – Street Global Advisors Research Strategist Matthew Bartolini, CFA and Portfolio Strategist Andrew Goodale discuss specific ETFs that advisors and investors can use in preparation of what could be a “new look” Federal Reserve in 2015.

FT: – Investors head for relative safety of bond funds. – (Subscription) Amid concerns about the crisis in Ukraine and the rise of Islamic militants in Iraq and Syria, investors on both sides of the Atlantic headed for the relative safety of bond funds in the second quarter of this year.

Bloomberg: – SEC Rejects Non-Transparent ETFs in Setback for Industry. – The U.S. Securities and Exchange Commission rejected plans by BlackRock Inc. and Precidian Investments to open a new type of exchange-traded fund that wouldn’t disclose holdings daily, setting back efforts by money managers to bring more actively managed ETFs to market.

Business Standard: – Time right for long duration debt funds. – Income funds of average maturity of less than five years will give benefit of rally in both corporate bonds and G-Secs.

ETF Trends: – More wealth managers adapt strategies into ETF offerings. – Registered investment advisors are beginning to take a closer look at exchange traded funds as an efficient vehicle to manage client assets and attract a wider investor audience.

Think Advisor: – Janus positioning to gather money as Gross move reshapes market. – Janus Capital Group Inc., the firm that hired bond legend Bill Gross last month, is positioned to pick up client deposits as his move sets an enormous amount of money in motion, said Chief Executive Officer Richard M. Weil.

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